EXCLUSIVE: BALAKLAVA-based hay exporter Balco Australia has become the latest local company to welcome foreign investment, entering into a joint venture with Chinese feed importer Shanghai Yanhua Hi-Tech in an effort to expand its market opportunities in China.
The joint venture will not involve the establishment of a new entity, with Shanghai Yanhua Hi-Tech instead becoming a partner in the existing Balco company.
Shanghai Yanhua Hi-Tech has been Balco’s major customer in China for the past seven years, and Balco chief executive officer Rob Lawson said the move “was something we needed to do” to allow the company to grow in China as the world’s most populous nation expands its dairy herd.
“Balco, in conjunction with Shanghai Yanhua Hi-Tech, are the major market shareholder out of Australia into China,” he said.
“From our perspective, if we were going to grow, with the potential that we think is there, we needed to bring the capital in to allow us to achieve that growth.
“It makes sense to bring that capital in with someone who is already an existing partner in the market.”
Shanghai Yanhua Hi-Tech will obtain an unspecified percentage of Balco shares as part of the arrangement.
"The company will retain local ownership, the joint venture will be a partnership," he said. "Balco is a publicly unlisted Australian company and will remain the same.
“There’s a very small percentage of shareholders that are getting out completely, while all of the major shareholders are only selling a portion of their shares because they still want to be involved and active in the company.”
Mr Lawson said the deal would have little impact on the day-to-day running of the company, with existing management structures to remain in place.
“The head office in Balaklava will certainly remain and be the base, and our facility in Brookton, WA, also remains unchanged,” he said.
“Current jobs are all in tact, with the potential for some upside in local employment as well.”
He said the Chinese investment would be a major positive for Balco suppliers, with the company expecting to increase the hay volumes it sources from SA and WA.
“We’re looking for something like a 10pc growth in tonnage volume for the next two to three years,” he said.
China takes between 25 per cent and 30pc – or about 40,000 tonnes to 50,000t – of Balco’s annual production, but Mr Lawson said the partners hoped to grow this share to about 40pc of the total production capacity.
He said the pursuit of growth in China did not come at the expense of Balco’s other markets.
“We have key customers in Japan, Korea and Taiwan, and Shanghai Yanhua and Balco have a high priority on servicing and maintaining the existing long-term markets, but this gives us an opportunity to capitalise on the growth in China,” he said.
“Those three existing markets are all mature – cow numbers are not increasing, feed rations are settled, and whilst they are great markets, the residents of those countries and the industry alike acknowledges that there’s not growth in those countries, but China is rapidly growing with other countries like Indonesia and the Middle East.”
Mr Lawson said Balco shareholders had been well consulted throughout the process.
“We’ve had shareholders meetings and given information to our shareholders, who are a combination of the four original founding shareholders, some staff, some grower suppliers and friends of Balco in the local community,” he said.
“We’ve been making them aware of the process that we’re going through and it would be very fair to say that feedback from our shareholders is positive, and they’re also excited about the growth opportunities for us.”
More to come in Stock Journal next week.
