PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:18 UK, 16th Oct 2009, by Agrimoney.com
Agria extends China's deal spate to New Zealand

Agria has extended China's spate of foreign agriculture investment to New Zealand, unveiling a NZ$36m investment in debt-laden PGG Wrightson in return for an 11% stake and a tap on the farm supplier's expertise.

Shares in PGG Wrightson, New Zealand's largest rural services business, jumped 20% on the news to close at NZ$0.78.

The investment by Agria, a Chinese seed developer and animal breeder which is listed in New York, extends a series of Chinese farm deals abroad.

Chemical giant Sinochem is in talks with Australia's Nufarm, while China Investment Corporation, China's $200bn sovereign wealth fund, bought into Singapore commodities trader Noble last month and reportedly signed a deal with Swiss-based Glencore too.

Debt burden 

However, Agria's entry as a "cornerstone shareholder" in PGG Wrightson is dependent on the New Zealand group raising further funds, potentially from a rights issue, to repay a NZ$200m loan which falls due in March.

PGG Wrightson has already revealed plans, including the scrapping of its dividend, to improve finances sapped by the drop in commodity prices and the poor performance of a dairy joint venture in Uruguay.

Analysts expect the company's earnings before interest, tax, depreciation and amortisation (ebitda) to slide by nearly 20% to below NZ$71m in the year to next June, sapping the cashflows needs to support its borrowings.

PGG Wrightson's debt-to-ebitda ratio, a key metric for assessing debt burdens, is forecast to hit a heady six times. 

Chinese opportunities 

The deal is designed to accelerate PGG Wrightson's entry into the Chinese agricultural market through joint ventures with Agria in areas from seed commercialisation to the "reform" of China's livestock trading, including the launch of an auction system.

Keith Smith, the PGG Wrightson chairman, said the company had "along with others in agribusiness, been evaluating for some time the scale and types of opportunities available through China's emergence as a global agricultural force.

"We have now identified a partner whose business profile and intentions are truly compatible with our own."

Alan Lai, the Agria chairman, said: "China never has a lack of growth opportunities and market potential but success requires hands on operational expertise that this partnership brings."

A joint statement from the compandies added that "both parties' aspiration" was for Agria to become "a significant shareholder in PGG Wrightson over time".

However, Mr Smith added that the deal was not a takeover, and that Agria had no intention of seeking a controlling interest.