Completion of First Consolidation of Private Sugar Enterprises in Guangxi

November 2019 saw the ceremony for hadover of Ouya Sugar for merger and restructuring. Xianggui Sugar, Nanhua Sugar and Donta Group took over Ouya Sugar, symbolizing successful restructuring of Ouya Sugar.
 
Ouya Sugar has four sugar plants and used to be one of the top 20 sugar producers in China. However it ran in deficit continually frorm 2013 to 2016. It could not maintain operation due to breakup of fund chain in April 2016, unable to payback the bank loan of 430 million yuan, 210 million yuan payment to cane freight and staff salary in arrears. Later Ouya Sugar had to give up the intentional merger with Nanhua Sugar, COFCO Sugar or Guangtang Group attributable to the high debt and foreseen thin margin.
Eventually, Qinzhou City Government promulgated more preferential policies which led to the merger by Xianggui Sugar, Nanhua Sugar and Donta Group. After this, the three enterprises shall settle the 155 million yuan cane payment in arreas within one month.
 
It is such a difficult task to restructure a sugar manufacturing enterprise owing to the following factors:
1 Heavy assetL sugar manufacturing is a traditional industry of heavy asset, the industry has a high asset liability ratio on the whole.
2 Poor industrial margin: food processing is limited to elementary products and the industry has a poor profit margin.
3 Big fund pressure: it is seasonal production but sales all year round, raw material cost is high, payment to cane farmers has to be settled within a short period of time and there is a huge fund pressure.
4 The industry has a noticeable cycle and price fluctuates fiercely: the big cycle is three years of bumper harvest and three years of poor yield, which leads to sharp fluctuation of sugar price. When the industry is at the sluggish period, most enterprises run in losses, whereas the sluggish period is gradually extending.
 
Still five sugar enterprises in Qinzhou shall go through strategic restructuring in 2020, and the prospect is not optimistic given the present market environment.