Cofco, the state-backed Chinese food group, has suffered another set back in its move to become one of the world’s leading agricultural traders, with the discovery of a loss at Nidera, the Dutch grain trader it is in the process of buying.
The Chinese group has uncovered a financial hole of around $150m in Nidera’s Latin American operations in Latin America after reviewing its accounts, according to people with knowledge of the situation,
The loss is the second problem to arise at Nidera since Cofco took a stake in the company two years ago. In 2015, Nidera posted its first loss in five years after discovering $200m in unauthorised trading losses on its biofuels desk.
Cofco did not respond to emails and calls seeking comment. Nidera is understood to have contacted its lendors about the most recent loss as it feared it could breach its banking covenants. It has arranged a loan from its main shareholder to ensure it stays within its lending ratios.
Cofco bought 51 per cent stake of Nidera in 2014 for $1.3bn as part of a wider plan to create an agricultural trader to compete with western rivals such as Cargill and Louis Dreyfus Company.
The Chinese company moved to take full ownership of Nidera in March paying $750m for the 49 per cent it did not already control from the families who founded the Rotterdam-based trading house almost a century ago.
The transaction was expected to close by the end of the year. The plan was then to merge Nidera with its Cofco Agri unit to create a new company under the banner of Cofco International.
That process could now be put on hold, one of the sources said.
Nidera appointed a new chief executive, veteran commodity trader Dierk Overheu, in April.
The other leg to Cofco’s international business is the agricultural assets it purchased from Hong-Kong trader Noble Group in two stages between 2014 and 2015.
Noble Agri employs about 8,000 people in 25 countries, and includes operations ranging from oilseed crushing plants in China to sugar mills in Brazil.
Unlike their rivals in oil, agricultural traders have experienced a tough couple of years because of unfavourable market conditions. A persistent supply glut has weighed on prices and reduced opportunities to move cargoes around the world.
UPDATE: Confirming this FT story, Nidera said:
As part of the Nidera Board’s plan to improve controls and risk management under the chairmanship and majority ownership of Cofco, the new executive leadership initiated a group-wide balance sheet review. The review recently unveiled an accounting issue in the Brazil balance sheet.
Because of the potential impact on bank covenants, Nidera has informed its lenders and COFCO has underwritten the financial support required to ensure compliance with the covenants. The cause of the accounting issue is currently under investigation. The review in relation to the rest of the company has not led to the need for any material adjustments and is largely complete. We will continue to work on strengthening the controls and governance within the company going forward as part of the Cofco Group.
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