Associated British Foods (ABF) plans to sell its cane sugar business in China to a consortium led by Nanning Sugar Industry Co Ltd, in a partial exit from the world's No 2 sugar market after more than 20 years.
ABF did not disclose the value of the deal, but two people with direct knowledge of the matter said the transaction value, including debt, was about $500 million.
One of the people said two domestic private equity funds, Minsheng Royal Capital Investment and Guangxi Royal Construction Investment had teamed up with Shenzhen-listed Nanning to buy the business. The people declined to be identified as details of the deal were not made public by the companies. ABF declined to comment while Nanning was not available for immediate comment.
Shares in Nanning, which has a market value of $1.1 billion, were suspended from trade on Monday afternoon.
The London-listed company, which also owns discount fashion retailer Primark, said it aims to focus on the European and African sugar markets, while warning its profit margins would suffer next financial year from a fall in sterling following Britain's vote to leave the European Union.
Following the sale, AB Sugar will have operations in Britain, Spain, southern Africa as well as beet sugar operations in northern China, with an annual processing capacity of some 4.4 million tonnes of sugar and 600 million litres of ethanol. ABF will have about 4,500 staff in China.
For Nanning, which produced just over 500,000 tonnes of sugar in 2015, the deal vastly expands its domestic footprint, handing it five cane sugar factories in southern China with an annual production capacity of some 600,000 tonnes of sugar.
Those operations are held through controlling interests in four joint ventures.
The sale also attracted bids from some Chinese state-owned enterprises, one person said.
While sugar prices have risen sharply this year, a long downturn in prices prior to that has forced many global producers, including ABF, to focus on profitable markets.
Worries have mounted about slowing demand growth in the world's second-biggest sugar consuming nations amid a broader weak economic outlook. A wet summer also hurt consumption of beverages, the largest end-user of the sweetener.
The take-over is the latest in a flurry of dealmaking that has seen the Chinese sugar industry consolidate in recent years as Chinese mills have struggled with some of the world's highest costs, partly because of higher wages.
"I won't be surprised at all if you saw more consolidation in the sugar industry in the south of China," AB Foods Finance Director John Bason told Reuters on Monday.
ABF entered the Chinese sugar market in 1995 with the acquisition of its first cane sugar factory through its Bo Qing joint venture in Guangxi province.
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