Chinese milk producer targets baby formula with Australian IPO

SYDNEY: A privately owned Chinese milk producer is planning a A$20 million (US$14.5 million) partial listing in Australia, using the funds raised to buy a local dairy processor to produce and export infant baby formula.

China Dairy Corp plans to list about 13% of a Hong Kong subsidiary on the Australian Stock Exchange on Jan 15, chief executive Youliang Wang told Reuters, aiming to capitalise on demand for Australian-branded formula.

Harbin-based China Dairy, one of the country's largest milk producers, owns about 18,000ha of land in the Heilongjiang province, providing grazing for about 40,000 dairy cows.

"The first step is the IPO and the second is the acquisition," said Wang, who is visiting Australia to talk to potential investors. "The Australian branding will be taken back to China to develop in the local market." 

The move comes as Australian suppliers struggle to keep up with demand, with reports that Australian produce is being sold at mark-ups as high as 500% following previous safety scandals in China over adulterated baby formula.

Demand is also expected to increase after China said last month that it will allow couples to have two children after decades of a strict one-child policy, a move aimed at alleviating demographic strains on the economy.

China Dairy will face potential regulatory hurdles should it spend more than A$15 million on a processor following new laws tightening restrictions on overseas ownership of agricultural assets.

Several deals for prominent acquisitions have been blocked by lawmakers, but Wang said he did not foresee any difficulties with regulators.

If successful, China Dairy will face an increasingly competitive market.

Australia's largest milk processor, Murray Goulburn, which raised A$500 million in July, Bega Cheese Ltd and the Australian arm of New Zealand's Fonterra Cooperative Group  all plan to boost Australian dairy production.

The industry is also under pressure from the El Nino weather pattern, which is associated with dry weather across Australia's east coast. - Reuters