China’s second biggest real estate development group, China Evergrande Group, is divesting three agribusiness subsidiaries focused on grain and oil, water, and dairy products to unlisted Chinese buyers for 2.7 billion yuan (US$405 million).

Evergrande’s grain and oil business will be sold for 600 million yuan (US$90 million), its spring water business is being sold for 300 million yuan (US$45 million) and its dairy business is being sold for 1.8 billion yuan (US$270 million) according to a filing with the Hong Kong Stock Exchange. Evergrande will be given 10 percent of the total consideration within three days of the signing of a sales agreement, with the balance being paid over the next three years, reports the Financial Times.

Evergrande acquired the three agribusinesses in 2014 in an attempt to diversify its business portfolio in the face of a struggling Chinese housing and real estate market. At the time, China Daily reported that Liu Yongzhou, vice president with Evergrande said that the development group planned to allocate 100 billion yuan (US$16.2 billion) to agricultural and agribusiness investments in the coming years, in a move to capitalize on Chinese consumers’ demand for clean, safe foods.

However, these non-core interests have yet to break even for Evergrande. For example, the group’s spring water subsidiary posted a loss of two billion yuan last year, after a loss of 2.37 billion yuan the year before, while the combined three agribusinesses are carrying debt totaling 3.3 billion yuan.

The sale of the three businesses is expected to generate a before-tax gain of 5.7 billion yuan (US$853.8 million) for the group which has also invested in baby formula and pig farming as a strategic move against China’s depressed real estate market.

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Lynda Kiernan