China's New Hope prepares for fast expansion
BEIJING (Reuters) - The parent of New Hope Agribusiness Co (000876.SZ), China's largest feed producer, plans to leverage Beijing's new pro-agriculture policies to rapidly expand its pork, chicken and milk production.
China announced far-reaching rural development plans earlier this month that would give farmers more freedom in how they use their land, with the aim to double rural disposable income by 2020 while channeling more investment into agriculture.
"It is a great opportunity that has the support of the government," New Hope Group chairman, Liu Yonghao, told Reuters in an interview on Monday.
Liu is a member of China's largest political advisory body, and is an influential voice in rural development issues.
"We will invest more than one billion yuan ($146 million) in our agriculture business in 2008, and will increase that amount next year," said Liu, who was ranked by Forbes magazine as China's 12th richest person last year with $3.2 billion in net assets.
The company expects the new investment will help double revenues over the next five years, but New Hope's board must first approve the financing, said Liu.
"In five years we want to reach 100 billion yuan in sales," said Liu, who expects group sales to reach about 45 billion yuan this year.
The rural development plan calls for modernizing farms and creating more opportunities for China's 750-million-strong farming population, but is also expected to heighten market risks as Chinese farmland is a battleground for money and power.
However, details of the plan have not been made public and it is unlikely Beijing would allow huge new investment after announcing just last week a $19 billion capital injection into the Agricultural Bank of China ABC.UL.
Agbank, China's third largest bank in terms of assets, piled up mountains of bad debt during decades of state policy lending.
New Hope is also looking at overseas acquisitions, but Liu said domestic expansion in the group's core agriculture business would account for up to 80 percent of its investments.
RURAL FINANCING
The company has established seven guarantee firms that offer rural financing as part of Beijing's rural development program, and is planning on setting up more next year, he said.
"The response from farmers and banks has been very positive," said Liu.
The guarantee firms work with local banks and cooperatives -- which provide the funds -- offering low-interest loans to farmers who previously did not have access to bank financing because they lacked collateral, Liu said.
HSBC (HSBA.L) (0005.HK) and Citigroup (C.N) have expressed interest in working with New Hope to establish such guarantee firms, said Liu, who did not provide any other details.
The company also aims to be China's leading producer of fresh milk in five years, and has taken initial steps for a possible acquisition of Sanlu Group, the company at the heart of a milk powder scandal that killed four infants and hospitalized thousands more.
But Sanlu -- which is 43 percent owned by New Zealand dairy giant Fonterra -- has pending legal liabilities from the scandal and a tarnished brand that make any acquisition complicated, said Liu.
New Hope is one of the top five fresh milk producers in China, Asia's second-largest dairy market, and competes with bigger rivals such China Mengniu Dairy (2319.HK) and Yili Industrial Group (600887.SS).
Liu said the price of pork would continue to be soft through the first half of 2009 after skyrocketing prices last year and early this year attracted greater investment.
"Even property developers jumped into pork production," he said.
Shares in New Hope's listed company have lost about 63 percent since the beginning of the year, in line with the 66 percent fall in China's benchmark index .SSEC and general weakness in global markets.
($=6.84 yuan)
(Additional reporting by Xie Heng; Editing by Ken Wills and Jonathan Hopfner)
