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COFCO to raise capital to fund acquisitions of overseas sugar firms

State-owned food giant COFCO Corp is likely to pursue more overseas acquisitions of sugar companies, its Chairman Ning Gaoning said on the sidelines of the ongoing National People's Congress in Beijing Thursday.

The latest statement echoes COFCO subsidiary COFCO Tunhe Co's expansion strategy in sugar industry. COFCO Tunhe plans to raise up to 4.89 billion yuan ($774.6 million) in funds, 3.61 billion yuan of which will be used to develop the sugar business, according to a report filed to the Shanghai Stock Exchange in February this year.

COFCO Tunhe took a 61.25 percent controlling stake in Australia's Tully Sugar Ltd in July last year. And the company said 1.09 billion yuan of funds would be used to acquire 100 percent stake of Tully.

"Domestic sugar industry is facing a serious shortage of raw materials with the rising plantation costs of sugar cane and sugar beets and diminishing labor and land resources. The industry may witness a drop in output in the next three years," the company said.

China's sugar production dropped to 2.2 million tons in January this year, from 2.7 million in the same month last year, China Sugar Association (CSA) data showed. 

Control over raw material resources will surely improve the competitiveness of sugar companies, Tao Weiyu, an analyst at the Beijing-based Distribution Productivity Promotion Center of China Commerce, told the Global Times Thursday.

Unlike some other companies in the sector, COFCO intends to establish a complete industry chain, including raw material resources, sugar imports and exports, sugar refining, and sugar production and sales, Tao said.

Ning said the company also intends to invest in corn and soybean sectors overseas, according to a report by Wall Street Journal Thursday.

But domestic food companies need to take into consideration a host of factors when expanding overseas, including foreign countries' economic and political policies, climatic conditions and cultural difference, Liang Mingxuan, an analyst with the CIC Industry Research Center, told the Global Times Thursday.

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