December 2, 2008


KKR to invest US$100 million in China- based raw milk supplier


KKR & Co. LP., the private equity company of Henry Kravis and George Roberts, plans to invest US$100 million in China raw milk supplier Modern Farm to tap growth in an US$18 billion market.


KKR will buy a minority stake in the Anhui province-based milk supplier which is controlled by former managers of China Mengniu Dairy Co., the nation's biggest liquid milk producer, the 2 people said, asking not to be identified because it's a private investment.


China is prodding dairy farmers and processors to merge and modernize operations. KKR's investment may help Modern Farm improve its technology to meet higher standards required by buyers.


Mengniu Dairy rose 6 percent to HK$9.22 (US$1.89) in Hong Kong trading at 11:21 a.m. local time. Rivals Bright Dairy & Food Co. and Inner Mongolia Yili Industrial Group jumped 10 percent in Shanghai trading.


Mengniu Dairy holds a small stake in Modern Farm, the people said. The KKR investment is led by David Liu, who helped Morgan Stanley invest a stake in China Mengniu Dairy in 2002.


Modern Farm's officials couldn't be reached immediately for comment. Richard Barton, who handles media enquiries for New York-based KKR in Asia, declined to comment.


Rising incomes in China, the world's third-largest milk producer, have boosted the value of dairy consumption to US$18 billion last year, according to Euromonitor International Plc. Demand was expected to rise to US$20 billion before the scandal, according to the research company.


China's Ministry of Industry and Information Technology will lead an industry-wide crackdown in the next 6 months, forcing dairy businesses without proper quality assurance to close, while giving the better-managed companies discounted financing, the Chinese government said on November 19. 


It is also raising the requirement for dairy farms, forcing them to meet more stringent hygiene standard.

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