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Bright Food eager to snap up more big international acquisitions

By RJ Whitehead , 26-Jun-2014

Bright Food eager to snap up more big international acquisitions

Unbowed by the decision by credit agency Moody’s to downgrade its outlook last month to “negative” following the recent near-billion-dollar Tnuva buy-in, Bright Food is now said to be looking to spend a further US$1.6bn on new deals.

The Chinese company is becoming increasingly international in its outlook, having bought a 60% stake in British cereal maker Weetabix for £1.2bn (US$2bn) in 2012, and previously acquiring majority shares of New Zealand dairy producer Synlait and food manufacturer Manassen Foods of Australia.

It maintains good liquidity, and by the end of 2013, it had a cash balance of RMB19.1bn (US$3bn), and available-for-sales investments with a market value of RMB9.3bn (US$1.5bn). These liquid funds should sufficiently cover its RMB24bn (US$3.85bn) in short-term debt.

Incorporated in China and headquartered in Shanghai, Bright is effectively wholly owned by the Assets Supervision and Administration Commission of the Shanghai Municipal Government. It is one of the largest food conglomerates in China with four major business segments -- food and agriculture; food wholesale and retail; real estate development; and logistics.

Speaking to Bloomberg, Bright chairman Lv Yongjie confirmed his company was looking at more local and international purchases, and stressed that any future deals would not be for small beans. The company has up to RMB10bn (US$1.6bn) in the coffers earmarked for acquisitions, and would focus on sizeable deals, one at a time, Lv said.

However, analysts have been jittery about Bright’s outlays this decade, resulting in Moody’s move to downgrade the company’s rating outlook.

"The change in the rating outlook to negative [was driven] by the weakened state of Bright Food's credit profile in 2013, and follows the company’s… acquisition of a 56% stake in Tnuva," said Lina Choi, a Moody's vice-president and senior analyst.

Moreover, its debt leverage of around 7.9x is high when compared to most [of its] peers, leading to pressure on its rating.”

However, Moody’s estimates Tnuva, which generated revenue of about RMB2bn (US$320m) in 2013, will contribute around RMB1.5bn (US$250m) in operating cashflow to Bright this year. This, along with its growing interest in acquisitions outside China, have been fuelling a longer-term sense of optimism among analysts.

"Bright Food's plan to increase geographic diversification, strengthen its brands in food products, and introduce financial investors as shareholders are credit positive," said Choi.

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