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onsumer goods giant Indofood Sukses Makmur’s divestment of most of its stake in Chinese vegetable supplier China Minzhong Food Corp. Ltd will allow it to write off under-performing assets and focus on its core instant noodle business.

Indofood will sell a majority of its 82.88 percent holding in China Minzhong for US$584 million to the British Virgin Islands-based investment vehicle Marvellous Glory Holdings. Both buyer and seller are controlled by Indonesian billionaire Anthoni Salim.

Such a buyout will allow Singapore-listed China Minzhong, which reported a third decline in annual profits for the year ended June 30, to be removed from Indofood’s financial books.

“The proposed transaction will strengthen the company’s financial position and be beneficial to the company,” Indofood said in a recent public announcement.

The reason behind the deal was China Minzhong’s unfavorable business conditions in light of China’s economic slowdown, with growth cooling from double digits in 2011 to nearly 6.5 percent at present.

“It will take a longer time to achieve the expected return on the company’s investment in China Minzhong than originally anticipated, principally due to the weak macroeconomic conditions globally, including in the People’s Republic of China,” the company wrote, adding that it still sees mid- to long-term prospects of China and “possible synergies” with China Minzhong.

With a minority stake in China Minzhong, Indofood will still have a degree of exposure to China, where competition between food makers is tight with the existence of many similar players in the industry, said NH Korindo Securities head of research Reza Priyambada.

Hence, Indofood can strengthen its grip in a more “delicate” market outside China and onshore,
he added.

“We see this transaction as part of Indofood’s effort to consolidate its business,” Reza said.

Presently, Indofood has a number of Indomie instant noodle factories overseas, including in Malaysia and Saudi Arabia. The company began construction of a new factory in Morocco last year, which was expected to be the world’s biggest Indomie factory outside Indonesia. Morocco is the sixth African nation to host an Indofood plant.

Brokerage firm Maybank Kim Eng said in a note to clients on Wednesday that the move was positive for Indofood as it might lead to a lighter balance sheet, lower foreign exchange exposure and improved returns on its capital allocation, Reuters reported.

Indofood had a total foreign-currency debt of about $1.1 billion as of June, or about half of its Rp 28.6 trillion ($2.16 billion) in liabilities, according to the company’s financial report.

The company, which has allocated Rp 7.6 trillion for capital expenditure this year, is upbeat that its sales can grow 7 or 8 percent to around Rp 69.1 trillion by year-end. As of the middle of the year, sales grew 4.4 percent to Rp 34.08 trillion year-on-year, with instant noodle unit Indofood CBP Sukses Makmur dominating over half of total sales.

Producing 17 billion packs of instant noodles per year, of which around 13 billion is consumed in Indonesia, Indofood recorded Rp 2.23 trillion net profits in the first half of this year. (vps)