China Mengniu sells bonds to pay its debts

The bond sale which will raise funds to pay off debts, is a twist in Mengniu’s earlier plan to buy out Modern Dairy in a bid to edge out rival Yili Industrial

PUBLISHED : Friday, 19 May, 2017, 2:42pm
UPDATED : Friday, 19 May, 2017, 11:06pm

China Mengniu Dairy, the country’s second largest dairy company, said it would issue exchangeable bonds worth US$194.8 million that could be exchanged for shares of China Modern Dairy.

If the bonds are fully exchanged into the shares, it will represent 11.24 per cent of issued capital of the dairy farm operator that controls China’s largest cattle herd, according to a filing to the Hong Kong stock exchange on Friday.

“[The] Company intends to use net proceeds of issue of bonds to refinance certain of its existing indebtedness,”the Inner Mongolia-based company said in a filing.

The sale came as a twist to the dairy producer’s earlier plan to buy out Modern Dairy to solidifying its grip on milk supplies amid an intensifying battle against rival Inner Mongolia Yili Industrial to grab market share.

The issue price, at HK$2.20 per share, represents a 33 per cent premium to China Modern’s previous closing price.

In January, Mengniu said it would pay HK$6.92 billion (US$892 million) to buy out China Modern Dairy, after an initial HK$1.87 billion bid to raise its stake triggered a mandatory general offer.

Modern Dairy owns cattle farms with 114,600 cows as of June, the largest herd of the sort in China, but it has been losing grounds to foreign players as it struggles to win the palates of increasingly discerning Chinese consumers.

The dairy farm operator posted a loss of 742 million yuan for 2016, weighing down the bottom line of shareholder Mengniu, which also suffered a steep 751 million yuan loss for the same period.

China Mengniu shares added 0.66 per cent to HK$15.36 on Friday, while China Modern declined 5.42 per cent to HK$1.57.