Mitsubishi enters Australian grains with Olam deal

Another heavyweight entered Australian grain trading in earnest with Mitsubishi Corporation's purchase of control of Olam International's business, in the Japanese giant's second agriculture deal in four months.

Mitsubishi Corp, the chemicals to logistics conglomerate with a stockmarket value of $35bn, paid $64.0m for an 80% stake in Olam Grains Australia, in which Singapore-based Olam will retain a 20% stake.

The deal represents the second selldown in seven months in Australia by Olam, which is amid a campaign to improve its balance sheet and consolidate assets after a multi-year buying spree which led to it becoming a target for short-selling fund Muddy Waters.

Olam in November agreed the sale and leaseback of nearly 12,000 hectares of almond orchards in Australia for Aus$200m ($186m).

However, for Mitsubishi Corp, Monday's purchase offers a "strong foundation on which to build a profitable and sustainable grains business in Australia", a statement said.

Investment magnet

Indeed, the deal brings a further heavyweight into an Australian grains sector which has already attracted the likes of US-based Cargill and CHS, Switzerland's Glencore Xstrata and Mitsubishi's rival Sumitomo, which agreed in February to lift to 100% its stake in Emerald Group.

Australia's government in November cited need for the country's grain trading marketing industry to "transition towards more robust competition" in declining US-based Archer Daniels Midland consent to takeover GrainCorp.

However, the industry looks to have growing competition on the horizon with, for example, locally-listed Qube Holdings and Singapore's Noble Group in 2016 to set up grain terminal in port Kembla on the east cost of New South Wales.

Emerald is planning to expand its export facilities in Melbourne, Victoria.

Australia is attractive to agriculture investors for large crop production and relatively low domestic needs, leaving large volumes for shipment to major food-importing countries in Asia such as China, Indonesia and the Philippines.

Port investment

Olam Grains Australia is one of the three investors - with Glencore Xstrata and CBH, the Western Australia grains co-operative in a maritime terminal at Newcastle in New South Wales which, when it opened in February, represented the first major grain port development in New South Wales in more than 25 years.

Olam Grains Australia is now to "invest in up-country procurement and logistics to scale up our local presence, and further build a differentiated and competitive model in Australia", said KC Suresh, the global head of Olam's grains business.

Mitsubishi Corp, which handles about 10m tonnes of grain a year, aims to double that amount by 2020, according to the Japanese press.

Last year, it bought a majority stake in Brazilian grains group Ceagro from Argentina's Los  Grobo in a deal worth about $500m.

In February, Mitsubishi Corp agreed a 50:50 joint venture in Malaysia with Colcafé, a subsidiary of Grupo Nutresa, Colombia's largest food company, to expand in instant coffee, which is made primarily from the robusta beans grown largely in Asia.

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