Huishan Dairy, the milk producer backed by billionaire Cheng Yu-tung, fell in its trading debut after the company and investors sold at least HK$10 billion ($1.3 billion) in shares in an IPO

September 28, 2013 Leave a comment

Huishan Dairy Falls in Trading Debut After $1.3 Billion IPO

China Huishan Dairy Holdings Co. (6863), the milk producer backed by billionaire Cheng Yu-tung, fell in its trading debut after the company and investors sold at least HK$10 billion ($1.3 billion) in shares in an initial public offering. The stock declined 5.2 percent to HK$2.53 as of 9.35 a.m. in Hong Kong trading. The benchmark Hang Seng Index advanced 0.34 percent. Huishan Dairy and its investors sold a total of 3.8 billion shares at HK$2.67 apiece, with the company raising HK$7.52 billion after deducting underwriting fees, it said yesterday. The price was at the top end of a marketed range.China is pushing to raise standards in its dairy industry as consumers’ distrust of local milk has driven them to source products overseas or turn to foreign brands. Formula makers need to own their milk sources and have research and development capability, according to a draft of new rules for the baby-milk industry published in August.

The company, based in Shenyang city in northeast China, was established in 2009 as a raw milk producer. It then started selling liquid milk and milk powder products, and expanded into grain processing and trading. It owned more than 106,000 dairy cows, the second largest herd in the nation, as of end 2012, the company said in its prospectus, citing researcher Frost & Sullivan.

Huishan’s revenue rose 92 percent to 2.55 million yuan ($417 million) in the year ended March from a year earlier, the company said.

The funds from the share sale will be used in expansion of its milk supply and production facilities, the company said in yesterday’s statement.

About a third of the proceeds will be used to construct 45 new dairy farms in the northeastern province of Liaoning, and another 17 percent to import at least 75,000 cows from Australia or New Zealand over the next three years, it said.

The dairy producer also plans to spend HK$864 million on a milk powder production plant, with an annual capacity of 33,000 tons, which will be completed by March 2017.

Cheng, who has a net worth of $19.3 billion, according to the Bloomberg Billionaire’s Index, owns part of Chow Tai Jewellery Group Ltd. and also controls land developer New World Development Co.

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net

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