Luan Li / Yicai2017-03-29
(Yicai Global) March 29 -- China Huishan Dairy Holdings Co.’s [HKG:6863] major shareholders may introduce strategic investors to solve the cash crunch the group is faced with amid a crisis of confidence. A Dutch dairy cooperative with close business ties to the Chinese company, FrieslandCampina, is one potential candidate, as is has sufficient resources.
A senior executive at the Shenyang-based firm confirmed yesterday to Yicai Global that a strategic investor will be introduced soon to help Huishan Dairy resolve its cash flow issues and pay off loan interest. The executive did not identify the backer.
Both Inner Mongolia Yili Industrial Group Co. [SH:600887] and FrieslandCampina may be interested in investing in the cash strapped dairy producer, because the entry price would be low given the circumstances, and Huishan is widely known as a good company in the field, Senior Dairy Industry Analyst Song Liang told Yicai Global.
When asked if FrieslandCampina will invest in Huishan Dairy, Yang Guochao, senior vice president of Royal FrieslandCampina Greater China, said the company is monitoring the situation closely, and will take action if need be.
The quality of Huishan’s raw milk is very good, and milk safety is guaranteed by its operating model that covers the entire industry chain, Yang said.
The Dutch firm is not a white knight, said Shen Meng, director at Chanson & Co. It is more interested in Huishan’s assets, and will step in as soon as its Chinese partner decides to sell them off, Shen said.
The strategic investment will likely start with debt settlement, rather than equity acquisition, he added. New bonds may be issued to repay old debts, and in the future the backer can choose to exit after recovering the outlay or stay through a debt-to-equity swap. It may also opt for a direct capital injection.
Huishan is the largest Chinese dairy company with comprehensive business coverage across the dairy supply chain. Nearly 200,000 Holstein and Jersey cows are reared on its farms. FrieslandCampina is also a well-known ‘farm-to-fridge’ dairy producer.
The Dutch company invested CNY700 million (USD101.8 million) to set up a joint venture with Huishan Dairy to produce and market infant formula products in China in 2014. Each company holds a 50 percent stake in Royal FrieslandCampina Greater China. Their first milk powder product was launched last year.