Itochu Sells China Food Unit to Japan’s Asahi for $1.4 Billion

Itochu Corp. agreed to sell a Chinese food unit to Asahi Group Holdings Ltd., as the Japanese trader seeks to raise funds ahead of its planned $5 billion investment in Citic Ltd. and maintain its profit forecasts.

Japan’s third-largest trading house will sell the 74.1 percent it owns in China Foods Investment Corp. back to the unit for 161.9 billion yen ($1.4 billion), the Tokyo-based company said in a statement. The rest of China Foods’ stock is owned by a unit of Asahi, the Japanese company most famed for its beer.

Itochu said in January it will make its biggest investment to date to buy a stake in Citic, a Chinese conglomerate with assets that range from banks to food retailers. The size of the cash deal, equivalent to a fifth of Itochu’s equity, prompted credit ratings companies Moody’s Investors Service and Standard & Poor’s to place the Japanese trader on review for a possible downgrade due to the increase in its debt levels.

Japanese trade houses have suffered impairments over the last six months on commodity and energy assets, as prices from oil to iron ore have tumbled. In its statement, Itochu said it’s evaluating whether its results for the fiscal year that ends March will include “the effect of impairment losses stemming from the recent decline in resource prices.”

The sale of China Foods will give the company a 60 billion yen revaluation gain for the year, Itochu said, adding that its forecast for 300 billion yen in profit remains unchanged.

As part of the transaction, Itochu also agreed to buy from China Foods the shares it holds in Ting Hsin Holdings Corp., a maker of instant noodles operating in China, according to the statement. The classification of Ting Hsin will be changed from an associate to an investment for accounting purposes, Itochu said.