December 21, 2023

China's New Hope Liuhe seeks US$589 million capital boost through stake sales

Chinese animal feed and swine producer, New Hope Liuhe, has announced plans to raise CNY 4.2 billion (US$589.13 million) by divesting majority stakes in two of its units, a aiming to replenish capital following several months of losses in swine farming, Channel News Asia reported.

New Hope Liuhe intends to sell a 51% stake in its poultry breeding and processing unit, Shandong Zhongxin Food, to the state-owned China Animal Husbandry Group for CNY 2.7 billion (US$380 million) in cash. China Animal Husbandry Group is a prominent player in the production of animal vaccines, breeding, and feed additives.

Simultaneously, the company plans to divest a 67% stake in its Beijing food processing unit for CNY 1.5 billion (US$211 million) to Hainan Shengchen Investment Co, a firm under New Hope Investment Group, the investment arm founded by New Hope Group. New Hope Liuhe is a subsidiary of the privately-owned New Hope Group.

As the third-largest swine producer in China, New Hope Liuhe has faced challenges, reporting losses of CNY 3.88 billion (US$547 million) in the first three quarters of this year. The losses were primarily attributed to weak demand and oversupply, keeping hog prices below production costs for a significant part of the year.

In response to the financial challenges, the company informed shareholders in July of its plan to bring in state-backed investors for its poultry and food units. The stake sales are viewed as crucial to ensuring the company's competitiveness and sustainable development.

The ongoing shortage of working capital has become a pressing issue for swine breeders, with expectations that swine prices will not rebound to profitable levels until well into 2024. The shares of New Hope Liuhe fell by 0.64% on Monday morning, reaching CNY 9.25 (US$1.31) and marking the lowest level since early 2019.

-      Channel News Asia