British food and retail group Associated British Foods PLC is considering a sale of its China sugar business that could fetch $1 billion, according to people familiar with the situation.
The company is inviting bids for its AB Sugar unit’s China business, which was established in 1995 via a joint venture and now has factories and mills in southern and northern China, one of the people said.
The potential sale could attract domestic Chinese buyers, who are looking to invest more in agricultural commodities, according to people familiar with the situation. Bids are due by the end of May, they said.
Sugar consumption in China is slowing amid weak overall economic growth, and production costs have climbed higher with wage increases.
ABF, which is the sixth-largest sugar producer in China by capacity, scaled back its China operations last year. The British company sold two of its factories in northern China’s Heilongjiang province in 2015. It took a noncash charge of GBP100 million ($144 million) when it ceased operations in the province.
In April, the company signaled that its business in China was improving after it closed the factories and raised prices.
Operational performance at two beet-sugar factories, in Zhangbei and in Qianqi, was strong with 159,000 metric tons of sugar produced. In the South, production was 31% lower than last year at 287,000 metric tones, due to a combination of a smaller area assigned to the cane crop, excessive rain affecting cane maturity and the poor sugar content that resulted.
Chinese companies have been expanding in the agricultural industry at home and abroad in recent months. Sinochem Group, China’s biggest seller of seeds and fertilizer, in March made an offer to buy Singapore’s natural rubber supply-chain manager Halcyon Agri Corp. and combine it with other units to create the world’s largest listed rubber company.
In December, state-backed grain trader Cofco agreed to buy Noble Group’s remaining stake in their joint venture Noble Agri for $750 million.
ABF currently operates five cane-sugar mills in southern China’s Guangxi Province and two beet-sugar factories in the Northeast of the country with an annual sugar capacity of more than 800,000 metric tons, according to the company’s website.
ABF was one of the earliest Western companies to invest in China when a subsidiary put money into the country’s yeast production in 1985.
It has established more than 50 legal entities in China with a total investment of more than 6 billion yuan ($922 million) and employs more than 10,000 people, with business interests in other sectors such as agriculture, individual ingredients and nutritional foods.
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