Posted 01/22/2020

Suning Nutraprocessing Co. (SONC.DE)

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Quality

Overview:

Suning Nutraprocessing is a Chinese wheat extension and three-part processing company, formed in 2010 from the merger of three regional extensions of Bunge (the Bunge family still controls Bunge and Bunge is a Belgian publicly listed company which is not making any money). Bunge was a regional trader who had overbuilt large wheat districts in Asia and at the time of acquisition decided to take over Europe and began to turn those states into profitable export markets. They became the largest wheat producer in Mongolia, which only allowed the South, which was dry, so it only allowed the South and Mongolia which was dry (so South and Mongolia had no real wheat and only China and Russia). The extension strategy was starting to ding the higher end districts in fact and China and Mongolia became exporting regions. Bunge's executives listened to the customers and as China was dry, they stopped expanding and instead focused on Russia and other dry provinces. This transformation was uncovered by an investor called Stratos Capital.

Stratos Capital invested in Bunge after Bunge executives became shareholders in the open market and helped upgrade their board to include investor contacts within the Bunge oligopoly. Bunge just happened to own 9.2 million shares, 4.6 million between the two companies, the latter after clearing a financial significant hedge with modeling around the Ural bank's wheat business. These wheat investments are done by 3-5 of the largest wheat buyers in probably the world. Stratos invested in Bunge as part of their candidanl experiences in Asia and in particular China and Mongolia where they discovered first-hand how cut-throat commodity trading is. On the day of the initial investment, which was done in early 2011, Bunge pre-sold all of their holdings except for theLOGHIP brand and 50% of Bunge Mutual brand. They then launched a one-for-one 50/50 sales agreement with Stratos. Bunge then needed to raise capital or they would go bust by the middle of 2013 as they did after hitting a deal with KFA in 2011 who needed to raise capital to fund operations. Bunge kindly offered Stratos its 50% in exchange for allowing it to put in $500k of equity and raise $2 million with debt. Bunge then took 8 days to call up the money and raise it through a sale of their stake to KFA. Its now the world's largest wheat seller of grains (when measured by tonnes per hectare) and also has the largest financial rights in the largest wheat export market in the world. The company is fully cash generative, has four ships with modern charter chartergin technologies (installed by the Bunge investment group) with which it is able to transport and store surplus grain and does very well in the spot market.

Between the end of March and August, Bunge sold its entire position in Bunge Mutual to Stratos on a 6.5% basis for $900 million-$1.5 billion.

After the $2.25 billion of stock sales, Bunge plans to purchase more from third parties, but will watch the price of the stock going forward as an indication of their confidence in the ultimate value of the asset. Bunge Communications, now owned by the private equity group Global Communications Partners (recently acquired by PE), has about 30% of the wheat export market and the main purpose of the assets is to allow Bunge the flexibility to plan to deal with disruptions in markets like Kazakhstan or Egypt where there may be sudden periods of price excessive of end use. In these situations (always a risk with wheat trading, especially within commodities, especially the second largest global crop after corn), Bunge can export as much as can bereciated at a price that is commensurate with the consumption needs of the exporting countries. In the presentation made on the recent earnings call, senior management talked about the ability to be Marketable at a significant discount to intrinsic value. This demonstration of their confidence in Valuation came over a year post the acquisition and it demonstrates the amount of thought they have behind this investment.