China Huiyuan Juice Group Ltd., the nation’s biggest juice maker by market share, said it will buy a concentrates-and-puree maker from its chairman for HK$3.42 billion ($440 million) in new stock.
Huiyuan will issue 447.3 million new common shares and 655.3 million in new convertible preferred shares to a company owned by Chairman Zhu Xinli, according to a Hong Kong stock exchange filing yesterday.
The Beijing-based juice maker said it will also assume HK$1.52 billion of debt. Huiyuan fell 4.3 percent, the biggest drop in more than a month, to close at HK$3.13 in Hong Kong today.
“The stock dropped as investors are worried about its rising debt level,” Todd Yang, an analyst at Guosen Securities (HK) Brokerage Co., said by phone. Huiyuan had net debt of 3.2 billion yuan ($522 million) as of December, according to data compiled by Bloomberg.
Huiyuan, which says it holds 54 percent of China’s 100 percent juice market, has attributed a decline in earnings to pressure from China’s slowing economy and consumer concerns about food-safety issues. Last year profit sank 95 percent to 16.2 million yuan, the company said in March.
The target company China Huiyuan Industry Holding Ltd. had profit of 358 million yuan last year and 275 million yuan in 2011, according to the filing.
“In the mid to long term, the business should improve from this deal,” Yang said.
The purchase “secures long-term access to key raw materials,” Huiyuan said in yesterday’s filing. It also boosts quality control and helps diversify revenue and profits, the company said.