Asian-focussed investment investment house London Asia Capital is betting on growing environmental awareness in China by investing £2.7m for a 25% stake in Hainan Zhengye Zhongnong High-tech Co (ZYZN), a maker of bio-pesticides. The investment was made through the £50m London Asia Private Equity Fund, which is quoted on London's Aim market.
As well as environmentally friendly pesticides, ZYZN makes new types of corn, thus tackling China's urgent problem of food self-sufficiency from two sides. The company was founded in 1998 and today has over 130 staff with plans to list on the Shenzen exchange.
China is the largest consumers of pesticides in the world but the lion's share of the market is taken by high-toxicity products which create severe damage to the agricultural ecosystem and can pollute rivers and water supplies with potentially catastropic consequences.
At present, demand for bio-pesticide products is only 2-3% of the overall market for agricultural chemicals. But as environmental awareness grows in China, the share taken by bio-pesticide products could grow to over 20% in the next ten years.
Eco-friendly pesticide and fungicide products typically sell at a much higher margin than conventional pesticides due to increasing concern regarding food and pesticide safety.
ZYZN has also developed two hybrid corn products, which are already registered with China's ministry of agriculture. The first, “high oil corn”, contains twice the oil content of other varieties and is ideal for feeding livestock. ZYZN's second product “super sweet corn” is designed to cater for China's sweet tooth. The Company's R&D seed division is continuing to develop new products using its internationally patented high-tech corn hybrid technology.
Simon Littlewood, Director of the London Asia fund, said:
China is a developing country with 60-70% of its people engaged in agriculture. With 7% of the world's arable land, China has to feed over 20% of the world's population. Food security is of high priority and speeding up the development of agriculture is one of the primary tasks of the national economy.”
Presumably London Asia has done its homework on ZYZNone and hopes its trajectory is not going to mirror that of Bodisen Biotech, another Chinese minnow that also sought to ride the green agriculture boom in China. Bodisen, which makes organic fertilisers, lost its listing on the Amex market in April after not filing its annual report in time.
It is now only traded in the US via the Pink Sheets, a twilight zone where most sensible investors fear to tread, although Bodisen still retains its dual listing on London's AIM market. More on the Bodisen debacle here.