Sunday, June 8, 2014

Yunfeng, CITIC To Invest $320M In Inner Mongolia Yili Industrial

Chinese private equity firms Yunfeng Capital and CITIC Private Equity Funds Management (CITIC PE) have agreed to invest at least RMB2 billion (US$320 million) in a unit of Chinese dairy firm Inner Mongolia Yili Industrial Group Co. Ltd., according to an announcement made by Yili.

Yunfeng, co-founded by Alibaba Group's founder Jack Ma, and CITIC PE will acquire around 60% of Inner Mongolia Yili Livestock Development Co Ltd.

Yili is one of China's largest dairy companies. According to Euromonitor, China's total dairy consumption grew at 10% compound annual growth rate over the past five years, with premium dairy product consumption's market share also expanded from 10% to 19%.

Despite the rapid expansion, China's per capita liquid milk consumption is less than 10kg per year, compared to 32kg in Japan and 78kg in the United States, indicating massive future growth opportunities.

This is why big private equity firms and other investors have been pursuing deals in the Chinese dairy industry aggressively. In March, Hong Kong-listed Fosun International agreed to acquire a 20.45% of Beijing-based dairy firm Sanyuan Foods Co., Ltd. for RMB$2 billion ($325 million). In February, Hong Kong-based Asian private equity firm RRJ Capital agreed to invest US$250 million in Shanghai-based Bright Dairy & Food Co., Ltd.

Last November, Hong Kong-listed Chinese dairy firm Yashili International Holdings Ltd. says that Temasek Holdings, Hopu Investment Management Co. and three private investors will buy a 13.24% stake of the company from China Mengniu Dairy for HK$1.6 billion ($213 million).

In another deal, Affinity Equity Partners is said to invest US$123 million into a joint venture with Beijing Capital Agribusiness Group to focus on growing its dairy farming business.

Last September, Kohlberg Kravis Roberts & Co. and CDH Investments formed a joint venture with Modern Dairy to build two large-scale dairy farms in China.

The Chinese dairy sector has already provided profitable returns for some private equity firms. Last May, KKR and CDH Investments agree to sell their stakes in China Modern Dairy to China Mengniu Dairy in a potentially profitable partial exit.

In the broader food industry, four big private equity firms announced plans yesterday to work alongside Chinese food conglomerate COFCO Group to build large-scale industrialized hog farms and meat processing plants in China.

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