November 16, 2010

 

China Modern Dairy seeks US$571 million in HK IPO

China Modern Dairy Holdings, which operates dairy farms and produces raw milk, is seeking a Hong Kong main-board listing to raise as much as HK$4.43 billion (US$571.34 million).

 

The funds will be used to import heifers, expand farm operations and upgrade facilities to increase milk yield.

 

The company is selling 1.2 billion shares in a price range of HK$2.89-$3.69 each.

 

Of that, 90% will go to the international offering. Sources said the global offering so far had been four times oversubscribed.

 

The remaining 10% of the sales will go to the initial public offer (IPO) in Hong Kong, which started Monday (Nov 15) and ends on Thursday. Trading is expected to begin on November 26.

 

China Modern Dairy is the largest dairy farming company in terms of herd size (about 72,000 dairy cows as of June 30 this year) and raw milk output, according to the China Dairy Association.

 

The company's raw milk sales volume has increased to 158,081 tonnes, from 96,306 tonnes last year. Almost 100% of its milk is sold to China Mengniu Dairy, the nation's biggest maker of liquid milk.

 

The company, incorporated in 2008, forecasts its consolidated net profit for next year will be at least RMB210.4 million (US$31.65 million).

 

"The listing will provide the capital and platform for the company's further growth and expansion,' said chairman Deng Jiuqiang.

 

The company will use about HK$1 billion (US$128.96 million) to buy about 50,000 cows mainly from Australia, and spend HK$755 million (US$97.36 million) to build new farms. It will also spend about HK$503 million (US$64.87 million) to buy farm facilities such as feed processing machinery and herd management software.

 

Deng said the company's profitability would also come from improving milk yield and cutting labour cost.

 

The firm's milk yield per cow is 7.3 tonnes a year, which is far above the country's average of about four tonnes but far below the 12 tonnes in the US.

 

The company wants to enhance yield to nine tonnes by upgrading its facilities.

 

In the US, a worker can manage 40 dairy cows against one worker managing 1.5 cows in China, Deng said, adding that this was an area where the company can improve performance.

 

The company has obtained five cornerstone investors which agreed to subscribe to shares worth US$129.4 million in total.

 

They include major customer Mengniu, and Ceroilfood Finance - a wholly owned subsidiary of Cofco Corp. Cofco is one of the largest food companies on the mainland.

 

Other cornerstone investors include asset management company Keywise Capital Management, Hong Kong-based property investment company Dong Yin Development and the Government of Singapore Investment Corp.