The world’s only listed bamboo company has turned its back
on the plant to go into the China’s property market, citing a “shrinking pool”
of agricultural labour and weakened export prospects.

Asian Bamboo – which operates in Fujian province in south
east China, but is listed in Frankfurt – said it was to stop investing in its
bamboo assets, of which some would be put up for leasing out or “possibly” for
sale.

“If attractive possibilities arise to dispose of parts of
the business, that will be considered,” Asian Bamboo said.

The group, which traces its history back 21 years, said its
decision reflected a below-inflationary rise in bamboo prices, and a “shrinking
pool of available farm labour in the areas where Asian Bamboo operates” as
workers head into China’s cities.

For what workers remained in the countryside, the company
said it faced competition from other agriculture operators such as tea or
tobacco producers.

“The overall environment for running a bamboo plantation
business in China has significantly deteriorated, which has caused the company’s
revenue and profitability to decline sharply,” Asian Bamboo said.

Property boom

Instead, the group said it intended to exploit China’s
social upheaval by entering China’s famously strong property market.

“The same factors which are working against the company in
the plantation business will work for the company in the property business,”
Asian Bamboo said.

“Rising salary levels and the urbanisation process will
continue to underpin demand for property.

“Furthermore, many Chinese prefer to invest in real estate
rather than keep cash in banks or buy stocks or bonds.”

The company will, “to the degree that it is possible and
reasonable”, attempt to convert some of its 54,500-hectare plantation portfolio
into development land.

‘Prices remain high’

China’s property market has been in a multi-year rally,
belying government attempts since 2001 to slow price growth.

“Despite high interest rates and government initiatives to
limit speculation in the property market, prices remain high and volumes are
solid,” Asian Bamboo said.

While some investors notably Jim Chanos, founder of hedge
fund Kynikos Associates – believe prices are in bubble territory, others point
to fast wage growth too which, on some measures, has outstripped property price
rises, increased affordability.

Although a booming Chinese property sector should support
the market for bamboo, used largely in making houses, the industry has been
undermined by a strengthened remninbi, which has stemmed exports.

Asian Bamboo reported a loss of E3.57m for the first nine
months of 2013, compared with earnings of E1.86m a year before, on revenues
down 59% at R25.4m.

Shares slump

Tuesday’s announcement, which Asian Bamboo said would mean the
issue of a convertible bond, to “strengthen the Company’s capital base and to
facilitate its entry into the property industry”, received a cool welcome from
investors.

Asian Bamboo shares
plunged 37% to an all-time low of E1.152 on Tuesday  at their intraday low.

The shares stood at E1.16 in early deals on Wednesday, down 1.7%.