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Ocean Grown Abalone heads to ASX on clean and green China demand

This article originally appeared in Australian Financial Review

Ocean Grown Abalone is preparing for a $15 million initial public offering in 2017 after completing a $6 million seed capital funding round as it strives to double the size of its operations off the coast of Western Australia and capitalise on strong demand from China and Japan for the seafood delicacy.

Chief executive Brad Adams said close to 100 per cent of the green-lipped abalone being grown on an artificial reef off the coast of Augusta, about 30 minutes from the famous Margaret River wine and surfing region, was being sold to customers in China, Japan and Hong Kong.

“It’s a product that is aspirational in China. It’s a special occasion purchase,” Mr Adams said.

Mr Adams said the same “clean and green” theme which had driven strong demand for Australian vitamins from Chinese consumers was also playing out in premium seafood, with the pristine waters off Augusta where the Southern and Indian Oceans meet, appealing to commercial buyers of abalone.

Ocean Grown Abalone has 5000 concrete blocks built into an artificial reef in the pristine waters, and each of them have up top 40 abalone growing on them.

“It’s wild catch flavour and quality,” he said. But Ocean Grown is able to control production and step up supply as demand rises. It takes up to three years for a juvenile abalone to reach premium size.

“We expect production to reach about 100 tonnes a year by 2019,” Mr Adams said.

The IPO plans in 2017 will follow a $6 million capital raising. The company has been advised by View Street Partners, co-founded by Tim Andrew who is a former head of mergers and acquisitions, equity advisory for Standard Chartered Bank in Hong Kong.

Mr Adams said the aim was to double the size of abalone production.

“We’re at a critical inflection point in the growth of the business,” he said.

“We’re the first commercial abalone ranch,” he said.

Ocean Grown Abalone is also eyeing expansion into a second abalone “ranch” near Esperance in Western Australia, and is also examining establishing a third ranch at Port Lincoln in South Australia. Port Lincoln is a hotbed of tuna barons who have made vast fortunes exporting tuna to Japan and the rest of Asia, and is also an expanding centre for aquaculture operations.

The company raised $7.4 million in 2014 to accelerate the commercialisation of the process. The $6 million raising just completed takes the number of shareholders in the company to about 25. A range of high-net worth individuals and institutions participated in the raising.

Ocean Grown Abalone’s abalone meat was fetching around $170 per kilogram in Hong Kong and China recently.

Mr Adams said if the 5000 concrete blocks were laid out end to end in the ocean they would stretch for 12.5 kilometres.

The fundraising and looming IPO come as Chinese bottled water company Tianmei Beverage Group prepares to raise $10 million in an IPO and list on the ASX to tap into demand for premium bottled waters.

The firms are at the small cap end of the market but are trying to emulate in a smaller way the success of Australian vitamins companies Blackmores and Swisse and infant formula maker Bellamy’s who have all ridden the “clean and green” wave of strong demand from China, although they have hit harder times in the past few weeks and months because of regulatory changes imposed by Chinese authorities on cross-border e-commerce rules for imported products.