Yunfeng, CITIC PE sign $320m milk deal

The China-focused firms will invest in the dairy business of Inner Mongolia Yili Industrial Group.

Two Chinese private equity investors, Yunfeng Capital and CITIC Private Equity Funds Management, have agreed to invest at least RMB 2 billion ($320 million; €235 million) in a subsidiary of Inner Mongolia Yili Industrial Group, according to a filing on the Shanghai Stock Exchange.

The Shanghai-listed company, which is a Chinese developer of dairy-related products, is just the latest similar business to get an injection of capital from the country’s private equity community.

Yunfeng, a fund led by Alibaba Group founder Jack Ma, and CITIC PE will take a 60 percent stake in the company giving the investors a rare controlling stake in the China market.

After a number of tainted milk-related scandals in China, private equity firms have stepped in to help change the operations of these businesses, improving the quality of products, as well as boosting branding and marketing capabilities.

In February, Hong Kong-based RRJ Capital proposed a $252 million investment in China’s Bright Dairy, joining the line-up of private equity firms entering the sector.

Some have already had success. In June last year, The Carlyle Group and controlling shareholder Zhang International Investment sold Yashili to China Mengniu Dairy in a HK$12.5 billion (€1.2 billion; $1.6 billion) deal, having invested during 2009 and 2010, Private Equity International reported earlier.

In May, Kohlberg Kravis Roberts also reaped returned from its own milk investment, gaining 2.9x the money it invested in China Modern Dairy.

CDH Investments, Hopu Investments, Temasek Holdings and Affinity Equity Partners are other private equity investors to have invested in the sector.

Similarly, firms are increasingly looking to the comparable food safety issues in China’s meat sector to generate dealflow.

This week, KKR led a consortium of private equity investors, which included Baring Private Equity Asia, Hopu Investments and Boyu Capital, to create a strategic partnership with Chinese state-owned enterprise COFCO Group’s pork and poultry subsidiary, COFCO Meat, to build and manage large-scale industrialised pig farms and meat processing plants in China.

Financial details of the investment were not disclosed, but a source close to the deal told PEI that the total deal value is $270 million, with KKR investing $150 million and the other firms making up the balance. The consortium will own 62 percent of COFCO Meat following the transaction.