April 8, 2011

Chongqing Grain Group to build soy base in Brazil

Chongqing Grain Group announced that it would issue RMB500 million (RMB76.4 million) worth of the mid-term notes and invest about RMB2.5 billion (US$375 million) in the construction of a soy production base in Brazil.

This represents the largest overseas investment of China's grain and edible oil sector. Once operational, the local government-backed grain company is expected to get stable raw material supply and become more capable of fighting against the market fluctuation.

During last January to September, Chongqing Grain Group achieved the operating revenues of RMB2.89 billion (US$442 million) and suffered losses of RMB215 million (US$32.9 million). Last year, it got approval from the National Development and Reform Commission and the Ministry of Commerce for the soy project.

By now, the due diligence and land price evaluation have been completed. Construction of the project in Brazil will last for four years from 2011 to 2014. As for the fund of the project, Beijing-based China Development Bank promises to provide loans of US$234 million. Chongqing Grain Group contributes US$39 million itself while Chongqing Yufu Assets Management Co Ltd offers US$102 million.

As planned, Chongqing Grain Group will make investments of around US$3.38 billion into the grain and oil projects in foreign countries, with up to US$1.01 billion self-owned capital and the external investment of around US$2.365 billion. The upcoming overseas projects of the group include rapeseed bases in Canada and Australia, paddy fields in Cambodia and a palm oil base in Malaysia.

These projects can cause heavy financial pressure on Chongqing Grain Group, analysts said.

Currently, international grain giants like ADM and Bunge adopt the approach of growing soy in foreign countries to save land cost but also avoid planting risk. The government of Brazil, however, restricted individuals and entities from buying land in the country, even though Brazil does have abundant resources. China's grain enterprises will have some difficulties in expanding abroad, analysts said.