Thaco halts investments in HAGL Agrico

Thaco has decided to cut HAGL loose, ending the M&A deal between the two

On July 12, Hoang Anh Gia Lai International Agriculture JSC (HAGL Agrico, HSX: HNG) received an official notification from Thagrico about the latter's decision to stop purchasing HNG shares. Following the decision, HAGL Agrico will suspend the issuance of 550 million shares to exchange for its debt of VND5.5 trillion ($239.26 million) to Thagrico and call off plans for a private placement of more than 191.4 million shares for Thagrico.

Thagrico pointed out three reasons for suspending investment in HAGL Agrico. First, to support the company to repay loans from BIDV and other banks, Thagrico received the transfer of three HAGL Agrico subsidiaries namely Indochina Rubber, Dong Penh, and Trung Nguyen Rubber in 2019. The subsidiaries have a total production area of ​​22,462 hectares in Cambodia and Gia Lai province with a total value of VND7.62 trillion ($331.48 million).

While the payment has been completed, Thagrico has not received any documents on land ownership after the subsidiaries, which are being held at BIDV.

By the beginning of 2021, Thagrico continued to receive the transfer of four other companies, including An Dong Mia, Hoang Anh Quang Minh Rubber, Hoang Anh Dak Lak, and Tay Nguyen Dairy Cow with a total area of ​​20,744ha. However, the land papers of these units are mortgaged to secure the debts of Hoang Anh Gia Lai Group (HAGL) at BIDV. Meanwhile, Thagrico has invested in building infrastructure and planting new fruit trees on the area of ​​the companies. However, without legal documents, the company cannot raise capital to continue investing in these projects.

Secondly, amid the difficult conditions of HAGL Agrico and as the planned share issuance has yet to be implemented, since the beginning of 2021 HAGL has reduced its ownership in HAGL Agrico to 11.43 per cent. This despite the commitment in the share issuance plan that HAGL would maintain its ownership at 25.24 per cent. This has caused HNG price to fall below par value.

Third, the COVID-19 epidemic is disrupting Thagrico's production and business activities, affecting the supply chain of agricultural materials in Laos and Cambodia, as well as fruit exports. This has forced Thagrico to adjust its investment and business plans.

According to HAGL Agrico, Thagrico is the only investor selected to be issued shares according to the plan approved by the general meeting of shareholders. Because Thagrico reduced its ownership, HAGL Agrico could not carry out the procedures for the private placement and share issuance at the State Securities Commission. Therefore, the Board of Directors held a meeting to pass a resolution on stopping the issuance of 550 million HNG shares for debt swap as previously planned.