Huishan Dairy aims to raise US$1.3b in IPO

The float of the mainland company, backed by Cheng Yu-tung, would be HK's biggest in months

PUBLISHED : Tuesday, 10 September, 2013, 12:00am
UPDATED : Tuesday, 10 September, 2013, 2:47am

China Huishan Dairy, in which Hong Kong business mogul Cheng Yu-tung has a roughly 25 per cent stake, plans to raise up to US$1.3 billion through a float in Hong Kong that is poised to be the city's largest initial public offering since June.

The firm, based in Shenyang, Liaoning province, runs vertically integrated operations in the milk supply chain, from cow breeding to manufacturing.

It plans to sell 3.79 billion shares at an indicative price range of HK$2.28 to HK$2.67 each, translating into an expected price-earnings ratio of 14.5 to 17 times next year's forecast earnings, a document seen by the South China Morning Post shows

The deal has captured at least three cornerstone investors - Yili Group, Cofco Agricultural and Norges Bank, which manages the Norwegian government's pension fund - to buy US$220 million of shares, representing about a 10th of the entire IPO.

The firm will begin a global roadshow today and take orders from institutional investors at the same time. Its shares were scheduled to be listed late this month, bankers involved in the deal said.

If successful, Huishan will join five dairy firms listed on the Hong Kong stock exchange - including China Mengniu Dairy and China Modern Dairy - which are trading on an average price-earnings ratio of 24, based on next year's forecast earnings, and a price-book ratio of 1.5 times.

Founded in 1951, Huishan has been looking to sell shares in Hong Kong for the past three years following a toxic milk scandal on the mainland in 2008, 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, the firm's website says. It owns 400,000 cows and runs six advanced manufacturing plants in Liaoning.

Following a spring thaw that included a handful of big offerings, including two listings of state-owned enterprises that each raised more than US$1 billion, Hong Kong's IPO market - which had been the world's top capital-raising venue for three consecutive years to 2011 - has been quiet for several months.

Market sentiment for new shares has been dented by concerns about a winding down of US monetary stimulus and a slowdown on the mainland.