Itochu Corp. has agreed to sell a Chinese food unit to Asahi Group Holdings Ltd., as the trading house seeks to raise funds ahead of its planned $5 billion investment in Citic Ltd. and to maintain its profit forecasts.
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, the Tokyo-based company said in a statement Tuesday.
The rest of China Foods’ stock is owned by a unit of Asahi.
Itochu said in January it will make its biggest investment ever to buy a stake in Citic, 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 it on review for a possible downgrade due to the increase in its debt levels.
Japanese trading 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 is 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 sale of China Foods will give the company a ¥60 billion revaluation gain for the year, Itochu said, adding that its forecast for ¥300 billion in profit remains unchanged.
As part of the transaction, Itochu also agreed to buy China Foods’ shares in Ting Hsin Holdings Corp., a maker of instant noodles, according to the statement. For accounting purposes, the classification of Ting Hsin will be changed from an associate to an investment, Itochu said.