January 9, 2007
Foreign funds buys one-third share in China dairy firm
Three investment firms have made a US$73 million investment in Hunan Taizinai Group, a Chinese producer of milk-based health drinks.
Actis Capital LLP, Morgan Stanley and Goldman Sachs Group Inc purchased preferred shares equivalent to one-third of Hunan Taizinai, said Yao Xin, director of securities and investment at Taizinai.
More than 60 percent of the firm's equity would remain under chairman Li Tuchun and senior management, Yao said.
China has doubled its demand for dairy products in the five years to 2005, making it a very attractive market.
The three companies are buying into a relative small company like Taizinai as few buying opportunities are left with top-tier players, Yang Lei, a Shanghai-based analyst at ABN Amro Holding NV said, adding that buying into a smaller, regional player gives foreign companies a good way into the market.
Taizinai received more than 10 bids in its offering. London-based buyout firm Actis invested US$40 million, Morgan Stanley invested US$18 million and Goldman Sachs US$15 million in the firm.
The company plans to use funds raised from the sale to finance two processing sites in Kunshan and Chengdu, Yao said.
The investment would also boost Taizinai's plans in 2007 to increase market share in cities like Beijing, Shanghai and Guangzhou.
Hunan Taizinai is planning for a listing in Hong Kong or New York sometime this year,
Although it costs more to list in New York, it is money worth spending, Yao said, adding that New York's tough regulatory standards would give a good impetus to improve Taizinai's management and internal controls. Moreover, it would put the company on par with rivals like Mengniu, which is backed by foreign investors.
Last December, China's Mengniu, the nation's biggest producer of liquid milk, and Groupe Danone SA, the world's biggest yogurt maker, announced a RMB 1.6 billion venture (US$205 million) to market yogurt products in China.
