Japfa shares tumble 35.5% amid listing of its dairy business in Hong Kong

SINGAPORE – Singapore-listed agri-food group Japfa saw its shares tumble on Friday amid the successful listing of its China-focused dairy business AustAsia Group in Hong Kong.

Japfa shares closed down 35.5 per cent to 34.5 cents, the lowest since 2015.

As part of the listing, Japfa distributed its entire shareholding in AustAsia to its shareholders. Following this, S&P Global Ratings on Friday downgraded the group’s Indonesian unit, Japfa Comfeed Indonesia, saying its credit worthiness has deteriorated after the distribution move.

“As a result, Japfa Comfeed no longer benefits from a one-notch uplift from its parent,” said S&P Global, noting that the Indonesian unit will now account for 80 per cent to 90 per cent of its parent’s consolidated earnings before interest, taxes, depreciation and amortisation, and between 60 per cent and 70 per cent of the consolidated debt.

Elevated feedstock costs will continue to compress operating margins and increase working capital needs for both entities in 2022 and 2023, resulting in higher leverage and tighter liquidity compared with 2021, its analysts added.

Japfa Comfeed’s long-term issuer credit rating was thus lowered to “B+” from “BB-”. The agency said a further drop in rating could follow if the company’s leverage deteriorates from its expectations, or if the company’s liquidity profile “weakens notably”.

AustAsia was oversubscribed in its offering of 30.6 million shares prior to its listing. The 30.6 million shares were split on a 90-10 basis: 27.6 million shares were listed as “international offer shares” and 3.1 million shares were listed as “Hong Kong offer shares”.

The international offer shares were 1.16 times subscribed, while the Hong Kong offer shares were 2.08 times subscribed. This was based on the offer price of HK$6.40.

AustAsia began trading on the Hong Kong exchange on Friday, closing down 0.47 per cent at HK$6.37.

Japfa’s shares in AustAsia were distributed in specie to its shareholders, who received shares in the latter company in proportion to their respective shareholding in Japfa with no cash outlay.

“The distribution results in two distinct and leading agri-food businesses in animal proteins and dairy respectively, potentially unlocking value for Japfa shareholders,” Japfa said on Friday.

Japfa chief executive Tan Yong Nang said that with the distribution and the listing of AustAsia shares, Japfa shareholders will now participate in two leading agri-food businesses, each with a clear focus and strategy and the financial flexibility “to grow further in their respective dynamic markets in Asia”.

The company earlier said that certain “cornerstone investors” had subscribed for a total of 24.3 million AustAsia shares, representing approximately 3.47 per cent of the issued share capital and 79.33 per cent of the total number of shares in the offering. This is assuming that the over-allotment option is not exercised.

The over-allotment option granted allows AustAsia’s international underwriters to allot and issue an additional 3.1 million shares, or about 10 per cent of the 30.6 million shares initially offered, at the same offer price to cover over-allocations in the international offering. The option is exercisable at any time from Dec 30 till Jan 20, 2023.

THE BUSINESS TIMES