Sector News

ADM and Almarai among companies eyeing Saudi grains agency asset sale

March 8, 2017
Food & Drink

A partnership of U.S. agribusiness giant Archer Daniels Midland Co and Saudi foods group Almarai is among potential bidders for Saudi Grains Organisation’s milling operations, the kingdom’s sole supplier, sources aware of the matter said.

Italian wheat supplier Casillo Group and a partnership of Turkey’s TAV Group, a construction and airports conglomerate, and Saudi Arabia’s Al Rajhi Holding Group, a real estate concern, are also considering bids, the sources said.

The state-owned Saudi Grains Organisation (SAGO), which handles the kingdom’s grains purchases, is preparing to sell off its milling operations by placing them in four specially formed corporate entities while retaining other functions.

No details of the likely price of the milling operations were yet available, and it was hard to be precise as SAGO had never been run for profit, according to the sources.

Saudi Arabia is selling off parts of several state bodies in a bid to deal with lower oil prices and diversify its economy under its “Vision 2030” reform plan.

SAGO, one of the world’s largest wheat and barley buyers, is expected to be among the first to conduct asset sales, making it a model for how others might proceed.

Both SAGO and its financial adviser HSBC declined to comment on the agency’s privatization plans.

Almarai had no comment. ADM declined to comment on “rumors or speculation”. Representatives from the other companies said to be considering bids were not immediately available for comment.

DEADLINE

SAGO is considering a deadline of as early as the third quarter of this year for pre-qualification of bidders, although that could change, the sources said.

One of the sources said the kingdom was keen for Saudi entities, in partnership with international companies with technical expertise, to be part of the bidding process.

SAGO said in January it had set up four milling companies in advance of a privatization planned for later this year.

This came after the Saudi cabinet in 2015 approved the establishment of four joint-stock companies bundling the SAGO’s wheat and feed milling operations, to be overseen by the state-owned PIF, Saudi Arabia’s sovereign wealth fund, in coordination with SAGO.

According to a document by consulting group strategy& posted on SAGO’s website, the agency would divide up its milling operations between those companies. SAGO would turn itself into a regulator and retain control of wheat purchasing and storage, it said.

A separate, more recent draft of the privatization plan seen by Reuters added that the four companies would be expected to buy wheat from the government at subsidized rates and sell the output at fixed prices.

SAGO’s 12 mills currently have a combined milling capacity of 13,980 metric tonnes per day, it said. According to the strategy& document, two more milling operations are expected to be on stream by 2025.

Saudi Arabia has become a major importer of wheat and barley since abandoning plans for self-sufficiency in 2008, as farming in the desert drained scarce water supplies.

One of the primary aims of the SAGO privatization drive is to allow it to expand its grain storage operations in order to cater to the kingdom’s fast-growing population, one of the sources said.

The agency currently imports the kingdom’s entire wheat supply of around 3.5 million metric tonnes a year. It has said that demand for wheat is expected to grow at an annual rate of 3.2 percent to reach 4.5 million tonnes a year by 2025, largely due to population growth.

By Maha El Dahan, Tom Arnold and Katie Paul

Source: Reuters

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