Biofuels, China

China Grand Forestry Agrees to Buy Biofuels Company for US$822m

November 16, 2007 (Bloomberg) – China Grand Forestry Resources Group Ltd., the Hong Kong-listed men’s clothing and timber products supplier, agreed to buy a bio-energy company for HK$6.4 billion ($822 million) as China’s demand for alternative fuels surges. Grand Forestry will buy Yunnan Shenyu New Energy, a Chinese company that mainly does research and development on biological energy sources such as using the oilseed-bearing, drought- resistant Jatropha Curcas tree to make auto fuels, the company said in a statement to the city’s stock exchange today.

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China is set to become the biggest consumer of renewable energy, which may account for more than 15 percent of the nation’s energy use by 2020, WorldWatch Institute said yesterday. Biofuels, such as biodiesel and ethanol, may replace as much as 24 percent of global gasoline and diesel use by 2030, according to BP Plc, Europe’s second-largest oil company.

The timber company will pay HK$400 million in cash and will issue HK$6 billion in notes convertible into shares at HK$2.50 each, it said in the statement. Grand Forestry said it is buying Yunnan Shenyu New Energy from Forcemade Investments Ltd. The acquisition may be completed by Jan. 31.

Grand Forestry applied for its shares, halted Nov. 5, to resume trading at 2:30 p.m. The shares have more than tripled in the past year and last traded at HK$2.71.

China’s Spending

China plans to spend 1.5 trillion yuan ($202 billion) in the 15 years to 2020 on increasing the use of renewable resources, such as sunlight, wind, power and biomass, to cut the nation’s reliance on oil and coal. The country will subsidize biomass projects, especially those in bio-diesel and ethanol, the finance ministry said in November last year.

Yunnan Shenyu New Energy is establishing a Jatropha Curcas plantation, a refinery for processing oil from the plant and a biodiesel factory with annual capacity of 100,000 tons. Grand Forestry is buying Yunnan Shenyu New Energy through the purchase of British Virgin Islands-incorporated Shenyu New Energy, its parent.

Jastropha Curcas, or Barbados nut, originating in Central America, is mainly grown in Asia and in Africa. When the seeds are crushed, the resulting jatropha oil can be processed to produce a high-quality biodiesel fuel that can be used in a standard diesel engine.

Grand Forestry had sales of HK$829 million in the year ended March 31, according to the company’s annual report. Garment operations made up of about 12 percent of revenue, with the rest coming from forestry and timber sales. The company changed its name from Good Fellow Group Ltd. in 2006, when clothing accounted for 39 percent of sales and timber the rest.

Its shares rose in September after Grand Forestry said it intended to buy an unidentified British Virgin Islands- incorporated company that plans to make biodiesel from trees grown in China and southeast Asia. The acquisition comes as China, the world’s second-largest energy consumer, seeks to increase the production of biofuels while barring the use of grains to protect food supply.

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