FARMERS want to see an undivided GrainCorp with sufficient access to capital to continue to invest in its supply chain network according to Grain Producers Australia chairman Andrew Weidemann.
Speaking after reports of a rival proposal to the Long Term Asset Partners (LTAP) formal bid of $2.4 billion for the agribusiness giant, which could involve the company splitting its business units, Mr Weidemann said a diverse business was critical for GrainCorp.
“As we’ve seen this year, relying solely on east coast deliveries can result in some really variable results, there is that huge difference between 2016-17 earnings and what will be generated this year.
“The move into malts and oils has been good for the business, and takes the pressure off the bulk handling division, which is a great asset in the good years, in those poorer seasons.”
Investor John Wylie is reported to have flagged a potential demerger, potentially looking for a buyer comfortable with the climatic risk of the bulk handling business while leaving the oils and malts businesses intact.
On the volatility management front there has been some talk of a collaboration between LTAP and global insurer Allianz where insurer would insure the larger part of the agricultural risk.
However, there are no details on exactly how that would work and given the difficulty the production sector has had getting a viable multi-peril crop insurance (MPCI) product up and running there is some scepticism around this part of the LTAP proposal.
If it were successful, it was greatly reduce the volatility within the GrainCorp grain receival business.
Mr Wylie’s plan is a suggestion only at this stage, with no formal bid or proposal put forward to GrainCorp.
It is driven in part by what Mr Wylie is quoted as saying is the chronic undervaluation of the malt and oil businesses due to the share price being so correlated with east coast crop condition, in spite of the value of earnings from those two divisions.
Regarding the formal LTAP bid, Mr Weidemann was cautiously upbeat.
“We’ve talked to them and they are bringing in the capital, it is not a traditional, debt-driven deal.
“One of the things we have constantly wanted for GrainCorp is more capital to allow investment in the supply chain, to see more money into their Project Regeneration of bulk handling sites and supply chain and this could be one way of achieving that.”
Mr Weidemann said there were still more details to thrash out, but he said the LTAP team had expressed a commitment to investing in the supply chain.
“For farmers, they want to see any capital poured into the bulk handling system, that is the big one for them and in talking to LTAP they certainly recognise that.”
Mr Weidemann said he had no problems with transitioning GrainCorp from a listed company to private ownership.
“Growers don’t have control of the company as it is as a listed business, so I see no problem if that was to change.”