A Chinese aquaculture firm’s challenges after regulator slap-down

Published on
October 27, 2015

Tongwei Co., one of China’s largest producers of aqua feed, fish fry and tilapia is facing uncertain times as the firm seeks to raise new funds through its listed arm for expansion in feed and solar energy projects. Tongwei, listed in Shanghai, this week announced that the China Securities Regulatory Commission (CSRC) did not approve the company’s plan to raise USD 300 million (EUR 271.2 million) in extra capital through a private share issue and extra borrowings. Tongwei’s shares had been suspended pending the share launch but re-commenced trading on October 22.

Tongwei’s borrowings would bring its debt-to-equity ratio to over 70 percent, well above an industry average of 47 percent according to Chinese financial media reports. The firm is taking on massive amounts of debt to finance its ambitious expansion of feed and new energy projects. Tongwei has invested heavily in solar power equipment makers in recent years: the firm installs solar power at fish farms and other rural facilities to cash in on a Chinese government call for “solar integrated farming” to be built into Chinese agriculture and its massive aquaculture sector.

Its trouble to raise new funds on the stock market will challenge Tongwei, which has also sought to expand its fish feed production and sales, recently entering a joint venture with BioMar to build several feed plants in China with an ultimate planned annual output of 500,000 metric tons (MT).

Tongwei has expanded into Africa this month with a shipment of feed en route to fish farms in Ghana. Tongwei, itself part of one of China’s largest agricultural conglomerates, has shipped 42 MT of feed to a tilapia producer in Ghana from the company’s warehouses in Zibo on China’s east coast. A further 40 MT are set to be dispatched next month, according to a statement from the Zibo branch of China’s export quality watchdog the AQSIQ which has been advising Chinese feed and seafood companies on meeting international export standards.

The sale to Africa follows a concerted effort to build sales of fish feed in Southeast Asia – Tongwei has a mill in Vietnam and plans to construct another one in Indonesia. Based in the southwestern province of Sichuan, Tongwei initially built its business in pig feed but has been keen to expand in the growing aquaculture space: it supplies feed and fry to the tilapia sector but also operates its own tilapia ponds.

Production of formulated aquaculture feeds in China has trebled from around 5 to 15 million MT over the last 10 years. The country meanwhile has struggled to source sufficient amounts of fishmeal and is seeking alternative inputs. China’s use of fishmeal doubled from 500,000 MT to 1.5 million MT over the past decade.

While Tongwei has sought to expand its capacity it faces strong competition from other feed producers such as New Hope and Guangdong Haid, with the latter focusing largely on fish feed. China’s aquaculture sector continues to grow with aquaculture accounting for 47.484 million MT (up 4.6 percent year on year) of China’s 64.6 million MT of seafood output in 2014. Freshwater culture accounts for 62 percent of China’s cultured seafood produce but a growing amount is also coming from mariculture.

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