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CP Foods to raise $1bn for M&A, bracing for rate hikes

After a bumper year of deals, agribusiness seeks to lower interest payments

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The logo of Charoen Pokphand Foods is pictured at a food hall in Bangkok.   © Reuters

BANGKOK -- Charoen Pokphand Foods, the Thai agribusiness owned by billionaire Dhanin Chearavanont, plans to raise up to 38.7 billion baht ($1.12 billion) through a new share offering in an apparent move to ready itself for more mergers and acquisitions.

In what will be its first major capital increase in six years, the company will seek approval for the move at an extraordinary shareholders' meeting on Tuesday. Up to 1.548 billion shares will be allocated at 2.5 baht each to existing shareholders through a five-for-one rights offering.

According to stock exchange filings, 27 billion baht will be allocated to pay back loans and debentures, with the remainder set aside for future investments.

Following a year of acquisitions -- reportedly 11 deals were signed in 2016 worth a combined 50 billion baht, including the $1.08 billion deal for U.S. frozen meals company Bellisio Foods -- finance costs at CP Foods increased nearly 20% in the first quarter of 2017 to nearly 3.1 billion baht.

If the rights offering is successful, the company will be able to lower interest payments by up to 1 billion baht annually, Suttatip Peerasub, a food industry analyst at Maybank Kim Eng Securities (Thailand), told the Nikkei Asian Review.

Although its debt-to-equity ratio stands at around 1.4 and is on par with major peers such as seafood processor Thai Union, lowering the ratio "will make it easier for the company to borrow new loans for future M&A deals," another analyst at Bualuang Securities, who preferred not to be named, said.

CP Foods is the core business of conglomerate Charoen Pokphand Group. It has been aggressively seeking growth outside of its home market, where it is already the largest poultry producer, through M&A and investments into production.

With operations in 16 countries and exports shipped to more than 30 markets, international sales accounted for roughly 68% of its 464 billion baht revenue in 2016.

With the company's M&A aspirations, another reason for the fundraising might be to brace against possible future interest rate rises, which could lead to increased borrowing costs for the company, Maybank's Suttatip said.

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