(CN) Milk Production in China

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South China Morning Post

http://biz.scmp.com/bizmain/ZZZIIKRUG0F.html

Saturday, April 14, 2007

 

Mengniu joins rush to market for funds

Milk producer and top executives sell shares to raise HK$2.7b

by WONG KA-CHUN and CAROL CHAN

 

China Mengniu Dairy, the country's largest liquid milk producer, yesterday

joined a series of mainland companies that have raised money from big share

sales over the past two months.

Market watchers said many more were expected to join the rush to raise fresh

capital amid the recent stock-market highs.

 

Inner Mongolia-based Mengniu, along with its senior management, tapped the

equity market by offering HK$2.7 billion worth of new and existing Mengniu

shares after the firm reported a better than expected 59 per cent surge in

last year's profit to 727.35 million yuan on Thursday, market sources said.

 

The move was the first time the milk producer had raised new capital by

issuing new shares since its initial public offering in 2004.

 

The company is selling 57.57 million new shares at between HK$23.60 and

HK$24 each, representing up to a 5.03 per cent discount to the last closing

price of HK$24.85, according to a sale document obtained by fund managers.

 

Two senior executives joined the sale by offering a combined 55.3 million

existing Mengniu shares in the same price range, the document shows.

 

They could reap as much as HK$1.33 billion from the disposal if the shares

were priced at the top end.

 

The deal was being arranged by BNP Paribas.

 

About HK$370 million of the proceeds will be used for a 10 per cent

enhancement of production capacity for UHT milk products this year and

HK$300 million will be spent on increasing annual production for yogurt and

milk powder by as much as 50 per cent after the completion of new production

facilities.

 

" The offering came at a right time because of the ample market liquidity, "

said a hedge fund manager at a Japanese investment firm. " Most institutional

investors are increasing their investments in China-related stocks,

especially for the China retail sector. "

 

Mainland retail sales jumped 14.7 per cent in the first two months of this

year to 1.45 trillion yuan, beating market expectations of 12 per cent.

 

Other companies and investors have been placing shares over the past two

months to obtain fresh funds or capitalise from price gains.

 

China Infrastructure Machinery Holdings, which makes construction equipment,

and its chairman raised US$489 million by selling shares and convertible

bonds on Tuesday.

 

" There will be more firms cashing in on the market by placing shares to take

advantage of the prospering stock market and ample liquidity, " said KGI

(Asia) associate director Ben Kwong Man-bun.

 

Three smaller Hong Kong-listed firms - Smart Rich Energy Finance (Holdings),

MAE Holdings and Ming Hing Holdings - suspended their trading yesterday

because of equity fund-raising activity.

 

Kingston Lin King-ham, an associate director at Prudential Securities, said

the recent tide of share placements would not have much effect on market

sentiment.

 

Mengniu's earnings surged last year on improved gross margins and a cut in

its effective tax rate.

 

The company said net income rose to 727.35 million yuan last year from

456.85 million yuan in 2005, beating the 646 million yuan consensus estimate

of 20 brokers polled by Thomson Financial.

 

Mengniu has 33.3 per cent share of the mainland's liquid milk market by

volume at the end of last year, up 4.7 percentage points from a year

earlier, according to ACNielsen.