Hong Kong stock exchange setback for Chinese dairy

- Last updated on GMT

Related tags: Milk

Plans for China's biggest milk producer to float on the Hong Kong
stock exchange were dealt with a blow last week, as Hong Kong's
Hang Seng Index fell to its lowest rate in almost eight months.

China Mengniu Dairy is due to list its shares next month, and although it may raise $150 million in a share sale, this will account for 25 per cent less than predicted.

Mongolian-based Mengniu has grown more than 1,000 per cent in recent years, and has been the fastest growing player in the Chinese milk industry. US investment bank Morgan Stanley signed a foreign investment agreement along with CGU-CDC China Capital Partners and Dinghui Investment in 2002. The three companies have since invested $26 million into the company.

Foreign dairy firms entered the Chinese market in the mid-nineties when the country's milk consumption was beginning to take off, but have since retreated from the burgeoning market. Firms such as Parmalat and Kraft had a difficult time promoting the benefits of drinking milk, with marked higher prices to attract high-end consumers. Of the foreign dairy investors, only Nestle had its own farms, but it failed to capitalise on this by not pouring money into dairy farm infrastructure. The increased milk consumption left an undersupply of fresh milk, which benefited domestic players such as Mengnui.

The company derives 86 per cent of its sales from milk products, and in January sold 21 per cent of China's milk. China's milk industry's production was valued at US$5.5 billion last year, with profits at 51 per cent year-on-year.

Related topics: Business, East Asia, Dairy, China

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