Australia: Comments on AWB’s decision to attract a partner for its grain business

The decision by AWB to consider a joint venture with a global commodities player over its Australian Commodities Management business is a consequence of the death of the single desk and increasing concentration in the agribusiness sector worldwide, The Australian posted on September, 24.

The name of the partner has not been revealed, but it is understood AWB is talking to only one party. Logical candidates would include Glencore, Cargill, Louis Dreyfus, Noble Group, Olam, Bunge and some of the Japanese trading houses.

Noble this week said it would use much of the proceeds of China Investment Corp's USD850 million investment to increase its exposure to agribusiness globally.

The structure of AWB's joint venture has yet to be finalised, but it is thought that AWB may emerge with only 40 to 50 per cent of its existing grain marketing, pool management services, harvest finance and logistics business - basically every asset outside its Landmark rural services business. AWB is also looking to sell its AWB Geneva operation to the same party.

There appears to be some confidence that AWB and its partner can seal a deal by the end of the year, but of course nothing is certain. In AWB's case, third parties might find a partnership more attractive than a takeover, in part because of the potential for ongoing legal liabilities resulting from the oil-for-food scandal.

As for AWB, it wants to assure the market it will not act like a holding company after it sells a significant chunk of its ACM business.

It will fix its ailing balance sheet through a A$459 million raising underwritten by Deutsche Bank, Goldman Sachs JBWere and UBS, combined with the upcoming sale of its stake in Hi-Fert and its Landmark loan book. The additional gains from the Geneva sale and ACM joint venture are likely to be put towards appropriate acquisitions to help AWB grow its business.

25 September, 2009