SAUDI ARABIA. Almarai, Saudi Arabia’s largest food producer by market value, acquired Fondomonte SA, a company that owns and operates three farms in Argentina, for 312 million riyals (US$83 million).
The Riyadh-based company financed the transaction from its cashflow and Islamic banking facilities, Almarai said in a statement to the Saudi bourse today. Almarai is expanding its supply chain and access to feed for its dairy herd and poultry business, “in line with the Saudi government’s trend to secure supplies and preserve local resources,” the company said.
Saudi Arabia, the Arab world’s largest economy, is encouraging food companies to invest in Africa and Asia to reduce local grain production and conserve water. The government is seeking to end the cultivation of water-intensive crops, including wheat, in the country by 2016.
A group of Saudi Arabian investors said in October 2009 they planned to establish the International Agriculture and Food Investment Co., a 2 billion-riyal company to invest in agricultural projects.
Savola Al-Azizia United Co. said in October it agreed to buy 78% of two Egyptian food companies for 556.5 million Egyptian pounds (US$93 million).
Almarai is expanding outside the Arabian Peninsula’s most populous country to meet rising demand for dairy and poultry products. The company plans to raise 1.5 billion riyals next year from the sale of Islamic bonds to fund growth, Chief Financial officer Paul-Louis Gay said on November 30.
“We estimate that feedstock comprises some 30 percent of Almarai’s direct input costs, so any savings will translate into attractive gains in margins,” said Asim Bukhtiar, an equity analyst at Riyad Capital. “The key risk with the transaction is further correction in agriculture commodities, which could erode benefits.”
Almarai’s shares rose 1.3% to 98 riyals at 11:06 a.m. in Riyadh, giving the company a market value of 22.5 billion riyals. The stock has lost 12.8% this year, compared with a 4.5% loss for the benchmark Tadawul All Share Index.