ARC Capital invests $18m in Chinese dairy company(2)

ARC Capital Partners, manager of a China-focused fund, is counting on continued growth in the country’s dairy consumption. The fund manager of the $120 million close-ended fund listed on AIM, London’s growth market, has agreed to invest alongside two Chinese partners for a controlling stake in Ningxia Xiajin Dairy Group, the largest dairy company in Ningxia Autonomous Region, according to a statement.

ARC will invest $18.1 million for an approximately 40 percent stake in Xiajin, post-transaction, Clement Kwong, managing director of ARC said.

ARC is partnering Wumart Holdings, a Hong Kong-listed Chinese retailer and Yinchuan Xinhua Department Store Company, the existing, controlling shareholder with a 70.8 percent stake in Xiajin, to form a joint venture. Wumart and Xinhua Department Store will invest a combined $18.9 million for 6 percent and 45 percent interests respectively, in the joint venture company. Upon completion of a deal, the joint venture – named Ningxia ARC Dairy – will hold an approximately 79.7 percent stake in the dairy business. 

The capital increase is aimed at accelerating Xiajin’s growth through the completion of a new production plant and intensifying marketing activities.

China’s dairy market is expected to nearly double, again, by 2010 to an estimated $20.5 billion, with growth estimated at 15 to 20 percent per annum. According to the statement, from 1999 to 2005, the aggregate annual value of dairy products consumed rose from $1.92 billion to $11 billion, with liquid milk consumption rising from 0.7 million tonnes to 11.5 million tonnes.

The investment in Xiajin is consistent with ARC’s focus – retail and consumer sectors of China, primarily, and her neighbouring countries, Kwong told PEO.

Last year, ARC invested in Goodbaby Group, a Chinese baby products retailer, wholesaler and manufacturer and Shanghai Hualian GMS Shopping Center, a hypermarket chain in Shanghai which has nineteen stores.