May 31, 2004

China's Mengniu Dairy Boosts IPO Range, May Raise $176 Million
 

China Mengniu Dairy Co., the nation's biggest milk supplier, may sell as much as HK$1.37 billion ($176 million) of stock after raising the price range for the offer by 16 percent, because demand beat expectations, a banker involved in the sale said.

Mengniu is offering the shares for between HK$3.125 and HK$3.925 each, or 15-to-19 times the company's forecast profit for 2004, said the banker, who declined to be identified. The range was raised from HK$2.69 to HK$3.72 a share.

The Hohhot, Inner Mongolia-based company raised the target after the benchmark index for shares of China-incorporated companies traded in Hong Kong jumped 21 percent since May 17, snapping a four-month decline. Mengniu needs funds to expand after demand for dairy goods in China grew 26 percent between 1998 and 2002, even as the global market was stagnant.

"The company has the strongest growth ever seen among food and beverage companies in China,'' said Winson Fong, who helps manage $2.4 billion at SG Asset Management in Singapore. "It should be preferred to others.''

Mengniu, which derived 86 percent of its sales from liquid milk products last year, posted a 16-fold increase in sales to 4.1 billion yuan ($492 million) last year from 2002. It expects to earn a profit of at least 300 million yuan, or 0.219 yuan per share this year, according to its share sale documents.

Some parents in China lost confidence in domestic milk powder producers, according to the Beijing-based China Dairy Industry Association, after Chinese police last month arrested 22 people and shut three factories linked to the sale of fake baby-milk powder that killed at least 13 infants, China Daily said, citing a central government investigation team.

Mengniu, which controlled 21 percent of China's liquid milk market, plans to boost milk capacity by one million tons from 804,000 tons, and triple the amount of ice-cream it produces, according to sale documents.

Mengniu and its existing shareholders, including Morgan Stanley's private equity unit, plan to sell 350 million shares that will start trading on June 10, bankers said last week.

Morgan Stanley's private equity, which invested $26 million in Mengniu with the two Chinese partners in 2002, will cut its stake in the company to 7.4 percent from 18.7 percent after the sale. The three investors also bought $35.2 million of convertible securities in October from a holding company which controls Mengniu, the sale documents show.

BNP Paribas SA and Morgan Stanley are managing the share sale.