COFCO to Join in Gasohol Business

China Resources Enterprise, Ltd. recently signed an agreement with COFCO Bio-Chemical Investment Corp., the whole subsidiary of China National Cereals, Oils & Foodstuffs Corp. (COFCO) to sell its 37.03% equity in China Resources (Jilin) Bio-Chemical Co., Ltd. (SH: 600893). The acquisition report released that COFCO will furthermore develop the corn further processing industry on the base of the current core business of China Resources (Jilin) Bio-Chemical. After completing acquisition, China Resources (Jilin) Bio-Chemical has owned two subsidiaries - Huanglong Foodstuffs Industry Company Ltd. and Cerestar China Resources Maize Industry Company Ltd. with a total maize processing capacity of 950 000 t/a.

What is the target of COFCO?

A source from COFCO comments that both the increasing crude oil and the energy shortage pulling by the high domestic economic growth are creating a huge market potential for gasohol and other new energy sources. What is interesting COFCO is that China Resources (Jilin) Bio-Chemical has built up a development potential in further processing maize or other agricultural products. Through the acquisition, COFCO hopes to enter the new energy industry that is designed by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) as one of the five industries to be developed preferably.      COFCO Bio-Chemical Investment Corp., which registered in Er. Virgin Is., is especially set up for the acquisition. The acquisition price is RMB223 million. And this is the third acquisition action after Ning Gaoning was appointed as the Chairman of Director Board of COFCO at the end of December 2004.      Before this acquisition case, COFCO has already acquired 59.63% equity in Shenzhen Baoheng (Group) Company, Ltd. (SZ: 000031) on December 31, 2004, and purchased 37.2% equity of Xinjiang Tunhe Investment Company Ltd. (SH: 600737) in June 2005. Shenzhen Baoheng majored in storage, logistics and estate. Xinjiang Tunhe is a company majored in processing agricultural products. Besides, COFCO is also the majority shareholder of COFCO International (0506.HK) that is listed in Hong Kong Security Exchange Center.        COFCO is one of the 53 important central companies directly managed by SASAC. It owned or controlled more than 260 companies with a total asset valued RMB59.8 billion by the end of 2004.  Its business covers agricultural products, foodstuffs and estate.       Ning Gaoning, the former Vice Chairman and president of China Resources Enterprise, Ltd., is good at merging and acquiring company by making use of financial tools. He aims to develop COFCO into a large enterprise with strong competitive edge in the globe. Entering new energy industry through acquiring China Resources (Jilin) Bio-Chemical should be his latest try and begin.

Why China Resources withdrew?

China Resources, set up in 1948, majored in three sectors including manufacture and sale of consuming products, estate and energy infrastructures. Since 1986, the company has been directly administrated by SASAC.       In December 2002 China Resources acquired the 37.03% equity of Jilin Development Company Ltd. at a total price of RMB200 million. Therefore Jilin Development was renamed China Resources (Jilin). Earning per share of China Resources (Jilin) was RMB0.13 in 2003, RMB0.045 in 2004 and RMB0.027 in the first quarters of 2005. No further improvement is expected to the company in the near future. In May 2005 SASAC asked China Resources to narrow its business range. That is the background for the withdrawing of China Resources.       Furthermore, China Resources has also another subsidiary majoring in producing ethyl alcohol from maize - Heilongjiang China Resources Alcohol Company Ltd. Analyst thought the subsidiary may be the next goal for China Resources to spin off. But there is no track showing that COFCO is interested in this plant.

Place hopes on gasohol

What changes shall it bring to China Resources (Jilin)? It is difficult to forecast now except its name will be changed. Analysts put their eyes on the actions COFCO will actualize. If COFCO can get a certification to enter gasohol business on the base of existing maize processing units, the performance of China Resources (Jilin) will be improved vigorously, some professionals comment.       A piece of later news disclosed that the managers of China Resources (Jilin) were discussing to purchase a cassava-to-alcohol project in southern China.  That will help the company to gain low cost alcohol.       It is the fact that the gasohol manufacturing technology is mature and simple. The key is to get the production certification from government. Taking reference to the background of COFCO, it should be easy for the group to get the certification.       Presently there are four companies having the gasohol production certifications. Heilongjiang China Resources Alcohol Company Ltd. is one of the four. Others include Henan Tianguan Group, Jilin Fuel Alcohol Company and Anhui BBCA Biochemical Company Ltd. COFCO can alternatively get the certification indirectly, for instance, acquiring one from the above mentioned four companies. Given to the current market trend, it is impossible to earn money from gasohol business without support from government.