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Noble Group Might Become Huge in China, Here’s Why

Yesterday, Noble Group (SGX: N21) announced that it will be selling 51% of its subsidairy, Noble Agri Limited, to COFCO Corporation and HOPU Investments, effectively creating a joint venture vehicle for its agricultural business in China.

The transaction values Noble Agri at 1.15 times its book value at the end of 2014; as of 31 Dec 2013, Noble Agri carried a book value of US$2.8 billion.

Why Noble is Selling?

Noble has been struggling to grow its agricultural business and actually suffered losses on that front in 2013. Its business in China is still relatively small and badly in need of a local partner to help them expand.

Who is COFCO Corporation?

It may come as a surprise to many but COFCO Corporation is a Fortune 500 company which was founded in 1949 by the government of China. It’s currently a State-owned-enterprise (SOE) and has since expanded its business to many other areas which include commodities, interests in property and insurance, and the distribution of packaged food.

But importantly for Noble, COFCO Corporation also holds a monopoly in China for the country’s grain trade.

Who is HOPU Investment?

HOPU Investments is a private equity investment company based in Asia. It’s leading a consortium of international investors to join COFCO Corporation as minority co-investors (a one-third stake) in the acquisition.

Why is this huge for Noble?

After the deal, Noble Agri will be considered the main international origination platform for COFCO. In theory, all international sourcing for COFCO will be done by Noble Agri and the latter’s activities would be integrated with the former’s downstream processing and distribution operations in China.

Given the huge scale of COFCO’s business in China (especially in grain trade as mentioned earlier), Noble Agri is poised to enjoy a huge demand for its services; that’s a positive that might not have surfaced had Noble Group tried to do it all on its own. In any case, Noble Agri and Noble Group’s prospects in China do look brighter after the deal.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.