Liaoning Huishan Dairy appoints 3 banks for its Hong Kong listing

The largest milk producer in the mainland's northeast hopes to raise up to US$1 billion

PUBLISHED : Thursday, 08 November, 2012, 12:00am
UPDATED : Thursday, 08 November, 2012, 3:51am

Liaoning Huishan Dairy, a Shenyang-based dairy producer in which Hong Kong business mogul Cheng Yu-tung has a stake, has appointed three banks as sponsors for its Hong Kong initial public offering planned for the second half of next year that could raise up to US$1 billion.

According to two people familiar with the plan, Huishan, the largest producer of milk products in the northeast, has listed Deutsche Bank, HSBC and JP Morgan as sponsors of the deal, while the final offering size will be subject to market conditions.

The three banks declined to comment, saying it was a private matter.

If successful, Huishan will be the first dairy company to list in Hong Kong in almost three years since the stock offering of China Modern Dairy that raised US$447 million in November 2010.

It will join five dairy companies already listed on the Hong Kong stock exchange that are trading on an average price-earnings ratio of 12.3 and price-book of 1.8 times based on next year's earnings and book value.

Share trading is currently suspended in two of the listed dairy companies - Daqing Dairy and Ausnutria Dairy.

Founded in 1951, Huishan has been looking to sell shares in the world's top capital-raising hub for the past three years following a domestic toxic milk scandal in 2008, caused when melamine-tainted dairy products killed at least six infants and made thousands of babies ill.

Huishan's annual production of raw milk reached two million tonnes and output of baby formula powder totalled 240,000 tonnes last year, according to the group's website.

It owns 400,000 cows and operates six advanced manufacturing plants in Liaoning province, a rapidly developing area in the northern region.

Apart from a rising disposable income among the Chinese middle class, a case for investing in the planned listing could involve issues such as the government's low-interest loans to back the development of clean dairy farms and lower the cost of production, a Beijing-based private-equity investor said.

The listing plan coincides with KKR's extended buying into the troubled Chinese dairy market. The New York-based private-equity firm, also the biggest stakeholder of Mengniu Dairy, is reported to be in talks about a potential buyout of China Modern Dairy, the largest raw milk producer on the mainland.

In addition, Washington-based Carlyle owns a 24.3 per cent stake in the Chinese baby formula maker Yashili. The private-equity firm first obtained a 17.3 per cent stake in 2009 before it went public in October 2010.