PACIFIC ANDES INTERNATIONAL HOLDINGS LTD The Edge,Singapore,
15 June 2015
THE&DGE SINGAPORE j JUNE 1S, 2015 •15
CORPORAlE l
China Fishery cuts debt, consolidates to prepare for future acquisitionsl BY MICHELLE TEO l
g Joo Siang djsJikes having lhe on going corporate reorganisation and consolidation at China Fishery Croup described as "getting the house in or derM.''Jt's not that we'rein trouble,"
Ng says. I don't like to use the phrase 'house in orMr'. lt [sounds) like it's very messy.Ac tually, it's not that bad...
lg is executive director of the frozen fish
China Fishery G roup
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and fishmeal suppller••md chairman of ìts pan•m company l'ac Hic Andes Resou rc es Development. He is also vice-chairman.
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June 15,2012
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June 10, 2015
managing direc1or and executive direc1or of Hong Kong-lìsted Pacific A.ndes lnternalional lloldings, one or the world's Jargest seafood companies, which owns 66.5% or the Singa pore-listed Pacific Andes Resources. The group was founded by the late family patriarch Ng Swee Hong. Ng and his family cont ro! about
55% of the Hong Kong-listed parent.
China Fishery shares have been trading at a low since 20l3, as il dealt with a slew of operational and reputational issues. As Ng explains il, there was a series of llegative news about the company su rroundil)g the is sues, which range f rom the Russian govern ment's suspicions of China Fishery's innu ence aver what Moscow considers a strategie asset, lhrough the cornpany"s Jong-term sup ply agreemems for flsh from Russian supplies, to the hostile teruvian Cishmeal producer Copeinca for some US$800 million ($1.1 bi llion). and later its reported struggle with Copeinca's bondholders 10 approve plans
10 use tbe Lìma-based unjt·to guarantee as much as USS1.2 billion in debt obligations at the group level.
There were aIso concerns about debt refì nancing risk. In February, the company suf fered yet another setback in the South Pacifie when onof its key vessels the Damartzaihao, formerly known as thLa{ayerre, was
placed on an illegaHishing list oompiled by
Ng:Our corporate strategy is to target underutilised fish species
ValuationKOI"e· 1.10
Fundamental score•· 0.75
TTMPIIW 13.46
TTMPfGW (0.60) PINAV(xl 0.52
TIM Oividend yield (%)
Mark.et capitalisation (mi1) 847.19
Sha res ootstanding{tx-treasury) mfl 3,683.44
Beta 0.83
11-monthpricerange 0.17to0.39
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had invested some US$180 million to con vert the Damarzzaihao (rom an oil tanker into a processing vessel, poor fishing con dì t ions tha t d id not meet forecasts meant the compar1y has had liuJe to show for its efforts...We were hoping that the South Pa· cific would become a major profit efor the Paciric Andes/China Fishery group. Il didn't happen, because the fish was sim ply not available," Ng says.
But hels optimistic t hat tlw flsh stock will
soon ret urn. In addition, the company has had a strong stan to the current fishing sea son in Peru. Ng says, having already caught
the South Pacific Regional Fisheries. Not long
Consumption growth
oil, has tbe potential to be far more lucrative.
about 84 96 of ils quota berore the seasor
after that, the company announced another rights issue to raise funds to redL·em US$250
China f'ishery's primary business is now
Peru via11 fishmeal production - it holds
"Our corporale strategy is to target undcruti· ends this month. lìsed fish species," Ng says.
million in Copcìnca bonds. As a resu lt, the
company's stock lost more than 396 in value almost overnight. ..Ali these events had re sulled in the drop in share prices." Ng tells
The &lge Singapore.
Ng and his team bave been busy rectirying
the highest anchovy fishing quota, or a te
tal of 31.6%, In lhe world's largeSI fishery.
1t operates 40 fishing vessels in Peru .and 1O processing plants, producing some 20% of Peru's total (ishmeal and fish oli. Jt also pur chases sea!ood from Russian suppliers un
AI>arl from feeding into growing aquacul
wre and agriculture demand, there is signlfi cant opportunity to gradually channel that supply imo human consumption, which ratses the value of the fish stock. Ng says that when anchovy-rishing was started in 2006, ror in
Debt levels
Ng is aiming for China Fishery's debt levels te
fall below lO%, before the company "'is read)
far another roond of growth" within the nex two 10 three years. He also assuresinvestor.: that another rou.nd of fundraising in the neaJ
the situation; shares in China Fishery recent·
der t he contract supply business, and has a
stance, anchovy was mostly turned imo nsh· future is unlikely."Equ.ity fundraisingis nogooc
l y recovered somewhat af te-r it redeemed the US$250 million bonds.That move aiso shaved its gearing Jevels from a high of 10296 10 48%, and saves the company US$23 million in an nua!interest payments. At the same time, Ng says, Pacific Andes is consolidating its busi nesses and improving t he management pro cesses to ensure issues such as the Daman zaihao's incluslon on the illegal. unreportcd and unregulated (IUU) fishing list. which the company attributes 10 a series of administra tive errors.do not recur.
"As the organìsation get:s: so big, illforma
lion doesn't get transmiued, and wc some
fleet of fishing vessels in the South Pacif.ic and off the coast or Namibia, wht"!rci t har vests mackerel.
China Fishery's contraci supply business used to accoum for more thterest, taxes. depreciation and amortisation. However, the com pany had to move away from the scgment in e..uly 2014. As Ng puts it, China Fishcry was Mperceived by the Rus sian government to be controlling the fishing
companies'" with its supply agreemems that
stretched tO IO years.
But he adds t hat the move strengthens
meal; about 10% of thc supply now gocs into human consumption. "Chilean seabass, black cod -ali were used for fishmeal40 years ago... Profit margins wili aIso be corresponding
ly hlgher; Ng estimates that fish for fishmeal
sells (or US$200 10 US$300 a tonne whereas t he same fish for human consumption could sell for up to US$1,000 a tonne.
Stili, the fishing business is exposed to the vagarìes or the industry, panicularly the weath· er and regulatory requirements.For instance, China Fishery is allocated a ftshing quota in Peruvian waters. and the volume o!catch dìHers (rom year to year, depending on the
for shareholders. lt's only good for sharehold ers if you have a specific purposc. For exam pie.we have done equity fundraising becaus( we were buying Copeinca and then [payin( down) the bonds.•
Analysts that lrack China Fishery recom
mend a "hold" on the stock. HSBC notes in, May repon t hat while thecomp.:my's net ge-ar ìng ìs estimated to declìne to 27% in F'Y2016 "cash flow management should remaìn th• key priority !or China Fishery, as the com paoy stìll has debt repayment obligatioos o around US$430 million over 2015 to 2018 anc US$282 million in 2019.•
t i mes make mistakes," Ng says. "Wha t we
t he com pany's growth prospects. Thc termi· governme-nt's announcing its lbtal Allowable
Also, th e opcrational environment for th•
are worried about is not what has happened. but that in the future there's no reason for an organisation like China Fishery or Pacifie Andes 10 have such a reputation on lhe JUU. lt's a shame."
Ng says 1he company will make more
natìon of those long-term suppl y agreements cushions the company from the risks of reg ulatory changes.1t also frees up US$241 mii Jion in pre--paymems that the Cish suppliers will return to China Fishery in instalments: US$180 mill ion has been rcpaid and Ng e.x
Catch from season to season.In additlon, the current El Niilo wt-ather phase, which brings hot.dry weather and warm ocean water, ar fects the fish population and limits the catch further. The government kept the Novcmber
20l4 to January 2015 season closcd, which
company is expccted to remai n challenging
1-tSBC has cut its earnings estimates for Chi na Fishery for FY2015 and FY2016 by 39'11 and 1396, respec1ively, to renect lower sale volumes.The bank has a fair value price tar get of 20 cents ror the stock, based on eigh
acquisitions once it strcngthens its balance
pects the remaining US$61 million to be re
aHccted China Fishcry's bottom Jine signi €i· ti mes FY2015 carni ngs, and rcflecti ng the di
sheet and organisational processes.··we be·
paid by March next year.
cantly.For 1H FY20IS cnded March. earnings
J ution f rom tht' rights issue and lower earn
lieve the industry is stili a fragme-nted one.
Further, China Fishery's venture into iish
were down 47% y-o-y to USS17.1 million, af· ings estimates.
There is stili a lot of room for further con
solldation...
ing for Peruvian anchovy, which the compa
ny currently processes imo fishmeal and fish
ter revenues fell 38C)f) 10 US$200.6 million.
In the SOuth Paclfic.where China Fishery
The stock is trading at about 1096 belov what il was a1 the beginning of thls year. [
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