Itochu Exits China Food Unit Leaving Asahi as Sole Owner

Itochu Corp. agreed to exit a Chinese food unit, leaving Asahi Group Holdings Ltd. as the sole owner, as the Japanese trader reorganizes its Asian food businesses ahead of its planned $5 billion investment in Citic Ltd.

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 yesterday. 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 Ltd., 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 in March will include “the effect of impairment losses stemming from the recent decline in resource prices.”

The exit from 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., which owns companies that make instant noodles in China. The classification of Ting Hsin will be changed from an associate to an investment for accounting purposes, according to Itochu’s statement.

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