Bangkok--2 Dec--TRIS Rating
TRIS Rating Co., Ltd. views no immediate impact on the credit ratings of Charoen Pokphand Foods PLC (CPF) after the company announced it would purchase a 74.18% stake in C.P. Pokphand
Co., Ltd. (CPP), a leading livestock and aquaculture feed producer in China and Vietnam.
On 25 November 2011, CPF announced that it will acquire 74.18% of CPP through its wholly-owned subsidiary, CPF Investment Limited, at a price of HK$0.9 per share. The sellers comprise Orient Success International Limited, Worth Access Trading Limited, and CPI Holding Company Limited, which are companies in the CP Group. The transaction will cost US$2,174 million (Bt66,307 million) in total. About 30% of the acquisition will be funded by a share swap while the remaining 70% will be financed with bank loans and debentures. The deal will include the issuance of 694 million shares of CPF at Bt30 apiece, in exchange for CPP shares. After the acquisition, CPF’s revenue base and operation will expand to cover 12 countries.
TRIS Rating said, CPP is the dominant feed producer in China and Vietnam, and is listed on the Hong Kong Stock Exchange. In China, CPP, under its recognized brand “Chia Tai”, is ranked the second largest firm in the feed industry. CPP’s operations in China consist of 78 feedmills across 28 provinces and municipalities throughout China, with an extensive national distribution network supported by 24,000 exclusive distributors. CPP’s operation in Vietnam is run by C.P. Vietnam Corporation (CPV). CPV is a vertically integrated company with business covering from feed, breeding, farming, as well as processed and branded food. It is the market leader in commercial feed production and commercial farming. During the first half of 2011, the combined revenue of CPP’s operations in China and Vietnam was US$1,839 million, or equivalent to 57% of CPF’s total revenue.
From a credit perspective, TRIS Rating said, the acquisition is in line with the CPF’s mission to become one of the leading agricultural companies in the world. The investment will support its plan to raise overseas revenue contribution from 26% of total revenue in 2010 to 63% by 2015. CPP will further diversify CPF’s revenue base and realize more growth opportunities in China and Vietnam. After the acquisition, CPF’s revenue from overseas operations will increase to about 50% of total revenue. The domestic (Thai) market will account for 40% and the remaining 10% will come from export.
From TRIS Rating’s view, the acquisition will weaken CPF’s balance sheet in the short term. However, CPF’s current business and financial positions are sufficiently strong to accommodate the investment. In addition, CPF’s capital structure is expected to improve gradually after the full contribution of CPP has been fully realized.
TRIS Rating currently rates CPF’s company and issue ratings at “AA-” with a “stable” outlook.