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Bright Food (Group) Co, China's largest food and drinks conglomerate created by a government-driven consolidation of Shanghai's food and beverage industry, was inaugurated in the city yesterday.

State-owned food and beverage manufacturing and retail groups Shanghai Tobacco, Sugar & Wine (Group) Co, Shanghai Agriculture Industry Commerce (Group) Co, Bright Dairy & Food Co and Shanghai Meilin Zhengguanghe Group, some of which were renamed, were incorporated into the new conglomerate.

Total assets for new entity Bright Food are estimated at 45.8 billion yuan (US$5.63 billion), while annual sales revenue is expected to be 40.6 billion yuan (US$5.08 billion).

"The core business of the new Bright Food group is to be centred around the whole food industry chain, to encompass modern agriculture, food processing, circulation and distribution," Wang Zongnan, head of the new group, said at the ceremony.

Wang was appointed to execute the consolidation of Shanghai's retail industry years ago, leading to the establishment of the Shanghai Brilliance (Group) Co.

The consolidations were initiated as part of a nationwide policy to restructure State-owned companies to help make them internationally competitive. Smaller factories incurring losses are being closed, while larger ones are being merged into massive industrial conglomerates.

Bright Food is so far the only giant that has been created in the food and beverage industry and similar consolidations in the industry in other parts of the country are not on the cards, according to analysts.

The new group will see similar businesses incorporated in a bid to slash costs and improve efficiency, the analysts said.

Yet analysts generally did not foresee the new entity having any noticeable impact on China's food and beverage industry, except that it may affect the business of related firms in the short term.

"Food and beverage is a fully competitive industry where small players are likely to survive and prosper," said Zhao Jinhou, an analyst with Shenyin Wanguo Securities.

"So I would consider the significance of the event to be the creation of a bellwether in an industry viewed favourably by foreign investors," Zhao added.

Consolidation of the companies was first suggested almost three years ago after weak performances from many of the firms involved and growing competition from foreign newcomers. Yet little progress was made until recently due to the capital structure complexity of the companies.

The new conglomerate will include many well-known Chinese brands such as Bright milk, White Rabbit confectionery, Guanshengyuan snacks, Shangshi meat products and Shikumen liquor.

It will also have up to 3,300 retail outlets, including locally well-known ones such as Nong Gong Shang (NGS) supermarkets, Kedi and All Days convenience stores.

Also under its flagship will be five listed companies, all publicly traded on the Shanghai Stock Exchange. They are Bright Dairy & Food Co, Shanghai First Provisions Store Co, Shanghai Urban Agribusiness Co, Shanghai Haibo Co and Shanghai Maling Aquarius Co.

"The restructuring will stay at the group level until at least the end of this year and will hardly go to the level of listed companies," said Peng Danxue, an analyst with Everbright Securities.

With the exception of Bright Dairy & Food Co, which was suspended from trading yesterday due to its ongoing share reform, the prices of the other four listed firms surged on the inauguration of the new group by around 3 percent, higher than the benchmark Shanghai Composite Index, which rose 2.14 percent.

Following the consolidation, some of the listed firms may be terminated from trading or be turned into shell companies to be acquired by firms that wish to gain a backdoor listing, analysts said.

(China Daily August 9, 2006)