HONG KONG-Want milk?
China Huishan Dairy hopes so. The Chinese milk producer is seeking to defy a lull in Hong Kong’s market for new share sales by raising as much as $1.3 billion in an initial public offering, a person with knowledge of the deal said Monday.
Huishan, which is based in the northeastern city of Shenyang and makes products including fresh milk, infant formula and yoghurt, will begin taking orders from institutional investors on Tuesday and is marketing its shares in a price range of 2.28 to 2.67 Hong Kong dollars, or 29 to 30 U.S. cents, apiece, the person said, declining to be identified because the information was not public.
A listing by Huishan would be a clear sign that Hong Kong’s stock market is emerging from a summer slump. The year had started off well enough for new offerings: in May, China Galaxy Securities raised about $1.1 billion, while Sinopec Engineering raised $1.8 billion. But by June, a number of I.P.O.’s were shelved or sharply reduced in size, after investors became concerned about the effects of a slowing Chinese economy and the U.S. Federal Reserve’s plans to begin reducing its bond purchases.
It remains to be seen whether those concerns have abated enough to accommodate a large new listing like Huishan’s proposed deal. If the demand for the offering is sufficient, company tentatively plans to price its I.P.O. on Sept. 19 and to begin trading on or around Sept. 27, the person familiar with the matter said.
At the same time, China’s dairy industry continues to struggle with food safety scandals. Huishan was not among the 22 baby formula producers in China whose products were found by government quality control inspectors in September 2008 to have been contaminated with the industrial chemical melamine, causing kidney-related illnesses in hundreds of thousands of infants and children in China.
The nationwide scandal that followed made Chinese consumers skeptical of locally made formula. But recent deal making activity in the sector suggests attitudes may be shifting, as quality formula producers seek to distinguish themselves. In June, China Mengniu Dairy agreed to pay $1.6 billion for Yashili International, one of the country’s biggest makers of infant formula.
Part of Huishan’s quality control efforts involves importing dairy cows, as well as certain grasses for their feed. the company has imported more than 110,000 head of cattle, according to a statement on its Web site, and says it operates China’s largest Jersey cow pasture.
The underwriters for Huishan’s I.P.O. are Deutsche Bank, Goldman Sachs, HSBC and UBS.
