COFCO Meat completes $252m Hong Kong IPO

The company sold 975.6 million shares at HK$2 apiece, having initially targeted up to HK$2.65 per share, according to a filing. Three cornerstone investors - Brazilian meat processor BRF, domestic electronics player Haier Group, and a combination of China Life Insurance and China Life Franklin Asset Management - bought 416.7 million shares, covering 42.7% of the offering.

COFCO Meat's shares opened at HK$1.87 on November 1 and the stock was down 20% at HK$1.60 by late morning trading.

KKR, Baring Private Equity Asia, Hopu Investments and Boyu Capital acquired a 70% interest in COFCO Meat with a view to introducing international technology and expertise to the company's hog farms and processing plants. For KKR - which contributed RMB801.6 million ($118.3 million) through two share subscriptions - it represented a continuation of a China clean food thesis that also covers dairy, poultry and fish.

Baring invested a total of RMB365.3 million, while Hopu and Boyu put in RMB328.7 million and RMB319.7 million, respectively. Hopu sold its stake to Temasek Holdings for $57.6 million - a modest premium to Hopu's purchase price - in September 2015.

KKR held a 20% interest in COFCO Meat prior to the offering and has since been diluted to 15% as a result of the issue of new shares, the prospectus shows. Baring's stake has fallen from 9% to 6.75%, Temasek from 8.2% to 6.15% and Boyu from 7.8% to 5.85%. A Japanese investment entity - owned by Mitsubishi, Itoham and Yonekyu - was diluted from 18.15% to 13.61%. It committed RMB692.9 million to COFCO Meat in 2011.

COFCO Group established COFCO Meat as the holding company for its meat production business in 2009. It pursues a vertically-integrated business model - from feed production to the sale of frozen meat products - and as of April, the company had 47 hog farms, two slaughtering plants and two processed meat plants, as well as one million live hogs.

COFCO Meat ranks fourth in China by hog production volume, according to Frost & Sullivan. It is looking to benefit from industry consolidation driven by increased demand for safe, high-quality products and the need to comply with increasingly stringent environmental regulations. Annual production capacity was 2.3 million head of cattle in 2015, up from 1.3 million in 2013; five new projects are in development that are expected to take capacity to 3.5 million by year-end. The target for 2020 is 5.5 million head.

In 2015, the company sold 527,457 head of cattle, 123,289 metric tons of fresh pork, 9,548 tons of processed meat products, and 106,896 tons of frozen meat imported into China. Sales revenue for fresh pork reached RMB2 billion for the year, up from RMB1.44 billion in 2014. Hog production revenue rose to RMB755.9 million from RMB410.6 million, and sales of processed meat grew to RMB329.8 million from RMB290.4 million, while imports generated RMB1.94 billion, up from RMB1.6 billion.

Overall revenue came to RMB5.1 billion in 2015, compared to RMB3.75 billion the previous year. COFCO Meat also swung from a net loss of RMB349.4 million in 2014 to a profit of RMB209.6 million in 2015, although this was largely driven by fluctuations in the fair value of agricultural produce and biological assets.

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• Topics
• Greater China
• IPO
• Consumer
• Industrials
• China
• Exit
• Agriculture
• KKR
• Boyu Capital
• Hopu Investment Management
• Temasek Holdings
• Baring Private Equity Asia