23 October 2016
Palentino (right) won the Group 1 Australian Guineas in Melbourne last month. Photo:
Palentino (right) won the Group 1 Australian Guineas in Melbourne last month. Photo:

Stud stallions a lucrative investment

It’s quite common for listed companies to acquire assets, whether businesses, property, cars, wine or even airplanes.

However, Sun International Resources Ltd. (08029.HK) said Wednesday that it spent HK$7.11 million (US$920,000) to acquire 15 percent of a horse, which is worth as much as HK$47.4 million.

Why is the horse so expensive?

The world’s most precious stallions can earn hundreds of millions of dollars a year for their owners.

But it’s a very risky investment, and investors could lose everything.

Sun International said it would pay A$1.21 million to Boom Rat Racing for the 15 percent stake in the horse.

The horse is reportedly a chestnut colt born by Teofilo out of Palantine Hill in 2012.

It won the Group 1 Australian Guineas (1,600 meters) in Melbourne last month.

The company explained the deal would increase the number of its stallions so as to enhance its existing breeding service business in future.

The horse, named Palentino, has won A$650,000 so far, after making its debut in September.

These top-level horses usually stay in the game until they are about seven years old.

However, they are able to make far more money from breeding after they retire from racing.

For example, Deep Impact, a champion Japanese racehorse, has become a stud horse after ending its racing career in 2006.

It’s estimated that Deep Impact is worth 5.1 billion Japanese yen (US$46.9 million).

It costs 10 million yen each time it is taken out to breed, so the horse could generate 2 billion yen of revenue for 200 stud sessions each year.

Deep Impact has many champion progeny.

Real Impact won the Yasuda Kinen race in 2011.

Deep Brillante won the Tokyo Yushun in 2012.

Marialite won the Queen Elizabeth II Commemorative Cup last year.

And Real Steel won the Dubai Turf this year.

Genes are truly the most important factor determining the success of a racehorse.

It’s interesting that the natural breeding season of the horse is from May until August.

A sire can usually breed about 100 times a year.

Someone figured out a smart idea. Let the stallion breed in the Northern Hemisphere for four months, then fly it to the Southern Hemisphere for breeding for another four months.

That dodge has doubled the value of these precious stallions.

Investment in stud horses is a lucrative business.

However, the world’s leading and most successful breeding companies are mostly family businesses. And they are private companies.

Meanwhile, average investors would face a huge risk if they make heavy bets on these expensive stallions, which usually only have a few years of breeding life.

And they could lose everything if the horse gets sick or can’t breed any longer.

Hong Kong, one of the world’s great horse racing centers, is not suitable for breeding horses, because of the natural environment.

And it’s quite rare for listed companies to get involved in the horse breeding business.

Sun International acquired Eliza Park, an Australian stud, for A$8.55 million in June 2013.

However, the firm’s horse breeding business reported a loss of HK$110 million last year.

This article appeared in the Hong Kong Economic Journal on April 8.

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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