Hopu Investment Management and Chinese state-owned enterprise COFCO are reportedly to invest around $800 million in China Mengniu Dairy Company in return for a combined 20 percent holding.
The investment will involve the purchase of both newly issued shares and existing shares and will make the two firms the largest shareholder in the Inner Mongolian company, according to a report in the Wall Street Journal. The report said the shares would be purchased at around a 10 percent discount to the stock’s most recent closing trading price of HK$19.10 ($2.5; €1.8).
Founded in 1999, Mengniu makes and distributes milk products including UHT milk, yoghurt and icecream throughout China. The firm was one of several implicated in last year’s milk scandal, when it was discovered the banned industrial chemical melamine was being added widely to milk products. The affected milk products killed six babies and poisoned thousands more.
Nonetheless, the company seems to have bounced back from the affair and according to the Wall Street Journal predicts a net profit of between RMB700 million ($102 million; €74 million) and RMB800 million this year, after recording a RMB949 million loss last year.
Hopu’s co-investor, state-owned enterprise COFCO, has diversified business activities including agri-business, food import and export, and property. According to its website, it was ranked 28th in a list of China’s 500 most valuable brands published in June by US-based research institution World Brand Lab.
With this investment, Hopu and COFCO follow hot on the heels of KKR, which last month completed “a series of investments” in Ma Anshan Modern Farming, a Chinese dairy farming company headquartered in Anhui province. Ma Anshan was in fact founded in 2005 by the former senior management of Mengniu Dairy. No financial details were disclosed.
For Hopu, the $2.5 billion fund set up by former Goldman Sachs executive Fang Fenglei in 2007, the investment marks its third PIPE deal this year. In January, the fund reportedly bought around $400 million of shares in Bank of China, as the lead investor of a consortium which allegedly purchased a total of $700 million worth of shares from exiting shareholder Royal Bank of Scotland.
Also in the banking sector, the firm was then part of a consortium of investors that reportedly purchased a 6 percent stake in China Construction Bank from Bank of America in May. Temasek, Hopu’s anchor investor, also participated in the transaction, which was apparently worth $7.6 billion in total.
Hopu, COFCO and Mengniu were all unavailable for comment at press time.