June 12, 2007

South Africa's Afgri on US$57 million poultry expansion

South African farming group Afgri is planning to raise R410 million (US$57 million) to expand the capacity of its poultry business.

The company has been considering spinning off its poultry and animal feeds business in a separate listing so as to separate its poultry activities from its grain trading activities.

Afgri is better known for its farmer services, grain storage and trading.

The company is also considering issuing new shares to fund the expansion or taking on loans. The funds raised would be spent over 12-18 months to double hatchery and abattoir capacity.

Afgri's poultry business is said to have very different dynamics for shareholders than the rest of its agricultural business.

One of the main challenges the company would be facing is the long term nature of the chicken business and the significant capital expenditure. Afgri's entry into the poultry business also comes at a time when margins are squeezed due to the high corn prices.

This would be in contrast to Afgri's grain trading activities, which enjoys more constant returns.

Thus, spinning off the chicken business would offer shareholders greater choice, the company said.