Jiuding Agriculture: Well Accumulated, Brilliant Success
At the beginning, Jiuding did not have a special agriculture investment department, and only 1 or 2 investment managers were in charge of agriculture sector. Nowadays, Jiuding Capital has formed an agriculture investment team with great strengths. Till now the agriculture team has completed investments in more than 20 agriculture enterprises, with an accumulated amount exceeding 1 billion yuan, accounting for 10% of the total Chinese market.
Agriculture investment: to dig gold under risks
Agriculture industry total value grows annually under multiple factors, e.g., population growth, and policy support. In the future, as preliminary realization of industry modernization and the transfer of rural labor force during urbanization, agricultural product prices will continue rising and agriculture industrialization will be accelerated.
From 2006 to 2011, the total number of disclosed investment cases in the Chinese agriculture industry reached 180, wherein the 159 cases whose investment amounts were disclosed had a total investment amount of 2.56 billion US dollars. 2011 saw the highest point in the past years, with 89 disclosed investment cases and a total investment amount of 1.104 billion US dollars.
“There are some persistent problems in agriculture industry, which poses great challenges to institute investors. If systematic research and analysis is not done during investment process or if disciplines and guidelines are not conducted towards the portfolio companies, each of the risks including policy risk, natural risk, market volatility risk, and regulations-complying risk is sufficient to cause failure of an investment”, Lui Guijin, investment director of Jiuding Capital’ agriculture sector, said. Generally speaking, China’s agriculture industry is a very big bone, but it is not so easy to gnaw.
Jiuding Agriculture: Deep ploughing and careful management makes great success
At the beginning, Jiuding did not have a special agriculture investment department, and only 1 or 2 investment managers were in charge of agriculture direction. Nowadays, Jiuding has formed an agriculture investment team with great strengths. Till now the agriculture team has completed investments in more than 20 agriculture enterprises, with an accumulated amount exceeding 1 billion yuan, accounting for 10% of the total Chinese market. It is not exaggerated to say that Jiuding Agriculture Sector ranks 1st in the Chinese investment institutions whether in investment amount, number of portfolio companies, or returns of investments.
Jiuding Capital has a number of investment cases in agriculture industry, sub-industries of which include agriculture equipment, cultivation and plantation, fertilizers and pesticides, agricultural materials trade, branded and leisure agriculture, etc. Gifore was the masterwork in Jiuding agriculture projects, and was invested by Jiuding Capital twice upon finding this good opportunity. Facts have proved that the sufficient analysis at the earlier stage and the value-added service including M&A provided at the later stage have enabled Jiuding Capital to obtain a high return of more than 20 times on this business. According to preliminary statistics, Jiuding Capital made a profit exceeding 270 million yuan from Gifore.
Undoubtedly, this is realized by down-to-earth works. To do the works to excellence is one characteristic of the entire firm in PE investments and is well embodied in Jiuding Agriculture Department. “It was common to work late into 2 or 3 am, and the next morning we would get up to continue working for report or review preparations. Even while conducting due diligence in the company, we often had strategy research and peripheral research toward each segmentation industry”, one senior investment manager said, with a little of tiredness on his face.
To lay road for the future by farsightedness and accumulation
“Investment in more than 20 enterprises in the agriculture industry is not only an achievement, but also an experience accumulation and a resource that can be integrated, which is the more precious fortune and can provide guarantee for future development of Jiuding Agriculture”, Liu Guijin said.
The professional operation capabilities required by agriculture investments should be very strong. The agriculture team should embed technologies and management into the portfolio projects or portfolio company operation teams by introduction of advanced concepts such as marketing, operation, and advanced agriculture, to help and support them to avoid risks, as well as find and solve problems. The role of Jiuding Agriculture is positioned more between industry investment and financial investment. Its form is financial investment, but techniques and capacities in the industry investment shall be adopted to provide resources needed by the portfolio companies, and logic in the industry investment shall be utilized to think over the value of portfolio companies.
This needs long-term accumulation. It needs experience and capability cultivated by projects, which is an advantage enjoyed by Jiuding Capital that cannot be compared to by other institutes. “We have conducted due diligence on nearly 1,000 agriculture enterprises”, Lui Guijin mentioned. The investment advantages of big professional firms are particularly embodied in big projects.
Industry low point is both a challenge and an opportunity
Undoubtedly, as the decrease of the price difference between the primary market and secondary market, PE industry is in a hard time now. During this stage, what Jiuding Agriculture needs to do is steady the tempo and improve its internal capability. “This year more effects will be spent on procedure optimization, risks control improvement and after-investment management. After expansion of the past 5 years comes a sedimentation period this year.”
“China is in the process of structure upgrading, so are agriculture enterprises. Larger investment opportunities and higher quality agriculture enterprises will be born during this process”, Liu Guiin said.
Future investment opportunities in agriculture industry lie in the process of industry upgrading and industry cluster. Enterprises enjoying higher core competitiveness in science and technology, channels and branding will be good investment opportunities, such as bio-agriculture, agriculture equipment, branded agriculture, agricultural materials trading.
A Wise Man Moving Forward in Low Profile