KKR’s China Modern Dairy IPO sees modest yield

The company opened trading on the HKSE on Nov 26th at HK$2.80 ($0.36), slightly lower than its set IPO price of HK$2.89 ($0.37), and saw an overall 13% slide on its first trading day.

KKR made a series of investments in China Modern Dairy, previously Ma Anshan Modern Farming Co., beginning in November 2008 with a joint c.$100 million investment with CDH Investments. The second investment of c.$40 million was made with the Government of Singapore Investment Corp. (GIC) in June 2009 after the melamine contamination scandal.

Although the Chinese dairy industry is conspicuously fragmented, KKR stated publicly that large-scale farms like Modern Daily have the potential to boost operating efficiency and provide a more stable, safe and reliable high-quality milk supply, not least because Modern Dairy’s senior management had well-established track records in the China dairy business.

Modern Dairy is closely linked to China Mengniu Dairy Co., which was hit by the melamine scandal. Sales of raw milk to Mengniu generated 97.6 % of Modern Dairy’s total sales in the financial year ended June 30, 2009.
Despite the industry’s loss of trust with consumers, the average selling price per kilogram of milk has increased steadily, reaching RMB3.73 ($0.51) this year, chairman of Modern Dairy Deng Jiuqiang noted.

 “I think that a brand owned by a large, publicly-listed company generally helps inspire better confidence than an ‘unknown’ brand, or one owned by a private low-profile company,” one industry advisor observed.

Advanced Dairy, a controlling shareholder owned by KKR, aimed to sell 228 million shares, equivalent to approximately HK$841.3 million ($108 million) in the IPO. The company’s five cornerstone investors, including Mengniu, GIC, COFCO-controlled Ceroilfood Finance, Keywise Capital Management and Dong Yin Development, subscribed a combined HK$1.01 billion ($129.4 million), according to the South China Morning Post. Citigroup, UBS, KKR Capital Markets and Deutsche Bank were the financial advisors on the listing, with Freshfields Bruckhaus Deringer as legal advisor.

“China will remain a key growth engine, although it will be hard to avoid some degree of volatility along the way,” the industry advisor told AVCJ.  “China continues to have many strong businesses that need to move or are moving to the next level – and PE funding (growth funding in many cases and buyouts in some cases), strategic tie-ups and/or IPOs are important steps in that process.” 

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• Topics
• Greater China
• Exits
• Consumer
• KKR
• GIC Private