Sources: China Fishery could buy more in Peru, as Diamante owners still looking for exit

January 14, 2014, 6:48 pm

 

Eva Tallaksen Alicia Villegas, Jeanine Stewart

Having acquired Copeinca,  China Fishery Group could now be close to making more acquisitions in Peru, with both Pesquera Diamante and Hayduk named as potential targets, sources told Undercurrent News.

 

Another Chinese fund, which sources did not name, is also said to be in talks to acquire Pesquera Diamante, Peru?s third largest fishing company by quota.

 

According to one well-placed source, Pesquera Diamante has hired Credit Suisse to arrange for a sale.

 

?China Fishery is now close to locking the Diamante acquisition, and if that succeeds they will hold more than 25% of the Peruvian fishing quota,? this source told  Undercurrent News.

 

Diamante holds 8.5% of Peru?s anchovy quotas, after Copeina/China Fishery (16.9%) and Tasa (14.1%).

 

Several sources said Diamante is also in talks with another Chinese private fund for a sale.

 

It has for some time now been said that Diamante?s private equity owner, Enfoca, is looking for an exit for its 18% stake.

 

But if a good offer is made, the entire company could be sold, said sources.

 

The remaining 82% shares are owned by the Ribaudo brothers, Juan Enrique and Fernando.

 

Diamante?s CEO Manuel Salazar, Enfoca and China Fishery declined to comment to Undercurrent.

 

In March 2013, news outlets had reported that South Korea?s Dongwon was close to making a move for Diamante. However, the deal then reportedly collapsed, with no news since then.

 

According to sources, it is well known in the Peruvian industry that China Fishery is still interested in buying up more quotas in Peru. ?China Fishery always keeps an open eye,? said one industry executive. ?They will go for any company.?

 

Some, however, questioned how China Fishery would finance such a deal. Its purchase of Copeinca, completed late last year, cost it $787.69m in cash and took its total debt to  $1.596bn.

 

The rumors come as Peruvian companies are becoming increasingly frustrated with the government and its regulation on anchovy fishing. This could make them more inclined to sell, said industry players.

 

?The problem is the government?s very bad administration,? said one executive. This has frustrated businesses, he said. It has also affected their cash flow, and subsequent valuations. ?The value of any company is their cash flow. In the two last years the administration, without any discussion, has restricted the Peruvian quota of anchovy by about 40%. The cash flow reflected the issue and of course the companies? values are lower than they could be.?

 

In this situation, he added, Chinese companies could see an opportunity to come in at a cheap price, ?wait two or three years and gain 40% or 50% in value?.

 

Another Peruvian executive echoed this view.

 

?Foreign companies along with high level politicians have achieved what they wanted: Peruvian companies can be sold at a cheap value, since Peruvian politicians have demolished the fishing industry,? said this source.

 

He added Enfoca was keen to exit Diamante, having owned it for several years. However, despite years of persistent rumors of a sale, ?eventually the company ends up not being sold?, he said.

 

$85m per 1% quota

 

If a deal were to happen, Diamante could expect to get the same valuation (85 million per 1% of quota) as Copeinca did for its sale to China Fishery. For Diamante, this would represent $722.5m. For Hayduk, it would mean around $561m.

 

?However, only a strategic investor would pay such a high price,? and only if the synergies are there, as is the case with China Fishery, said one source.

 

?The key question is how the interested party would appraise the human consumption business Diamante has ? canned and frozen fish, including a distribution brand,? this source added. ?Diamante?s owners are good entrepreneurs, the company is well managed and it?s a success story.?

 

  Hayduk restructuring

 

There is also talk surrounding Pesquera Hayduk, Peru?s fifth largest fishing company by quota.

 

Hayduk restructured recently, appointing new management and a new CEO. The company is also said to be very close to China Fishery Peru.

 

Although one source linked the restructuring to a possible sale, another said this was the end of a long process, with the former CEO having completed his task. ?In my opinion, as well as Diamante, if they receive a nice proposal, they will sell,? said one executive.

 

Growing foreign ownership

 

An acquisition by a Chinese company would heat up a debate that China Fishery?s purchase of Copeinca triggered in Peru: the issue of foreign ownership of the nation?s fishing quotas.

 

With nearly 17% of Peru?s fishing quotas, China Fishery Peru/ Copeinca is the country?s largest fishing group, ahead of former leader Tasa (14.1%).

 

This has triggered a debate in Peru, with voices clamoring for the government to impose restrictions on foreign ownership.

 

?Perhaps authorities have not seen the risks of being open for sell quota to foreigners, because they are completely ignorant about the sector, they also rejected the contribution the private sector could make on these issues,? said one executive.

 

Not all see it as an issue, however.

 

China Fishery?s capital is foreign, ?but the company is Peruvian: CFG Investment S.A.C, the subsidiary of CFG, is a Peruvian company?, Luis Ordonez, an analyst with Inteligo who covers Exalmar?s stock, told Undercurrent.

 

?Peru is open to long-term capital inflows and as China Fishery has had an apparent positive impact in the [Peruvian] economy, this investment would be welcomed,? said Ordonez.

 

Although the deal would consolidate the sector, Ordonez pointed out there would still be competitors, including Tasa, Exalmar, Austral (also foreign owned, by Norway?s Austevoll) and Hayduk, provided the latter doesn?t sell.