CHINA Dairy Corporation wants to take advantage of the one-child policy being scrapped in China by setting up a plant to make milk products for children to expand its existing dairy operations.
The company, which on Monday officially announced plans to list on the ASX and has access to the milk from 40,000 cows in north-eastern China, will use part of the funds from a proposed capital raising of up to $20 million to build a small-scale milk production factory and laboratory in China with a major focus on liquid milk for children.
The chairman of China Dairy Corporation, Enjia Liu, said in a letter contained in the China Dairy prospectus the company wants to "develop a new business stream to produce processed liquid milk targeted at children".
He said the company is in a strong position to capitalise on the growing appetite in China for dairy products, which is being driven by rapid urbanisation and government policies that have made the development of China's dairy sector a main priority.
Mr Liu said China Dairy has a 10-year track record of successful operation in China. It is also looking to bolster its business with Australian acquisitions.
It will list the company on the ASX via Chess Depositary Interests, which allow international companies to trade on the local stock exchange. The maximum amount of capital being raised is $20 million via the issue of 100 million CDIs at a price of 20¢ each. The market capitalisation upon listing, based on the maximum raising of $20 million, would be $150 million. The minimum subscription level is $15 million. China Dairy is expected to begin trading on the ASX in mid-January 2016. The offer opens on November 9.
The lead manager is Phillip Capital and the corporate advisor in Australia is BlueMount Capital.
Mr Liu says in his chairman's letter that revenues in 2014-15 reached approximately $US66.3 million ($92.8 million) and total income reached $US33.2 million. This meant the company had delivered a compounded annual growth rate of 19 per cent and 20 per cent respectively in the past two financial years, he said.
The company, which directly owns 22,000 cows and has partnership arrangements that give it access to a total of 40,000 cows, is based in the Heilongjiang province in north-eastern China. The total herd produces 612 tonnes of raw milk each day. The company has appointed Melbourne-based John Fick as deputy chairman, and David Batten as a director.
The Communist Party in China last week announced it would overturn the policy that had been in place since 1979 and meant families in China were able to have one child only; it is now allowing them to have two.
Gary Helou, the managing director of Australia's biggest dairy processor Murray Goulburn, said he would relish the competition from any new entrants to the dairy industry.
"Generally speaking, I welcome foreign investment in the agriculture sector. It's good for the country. We need capital, we need engagement in markets, so I see it as a positive," Mr Helou said after Murray Goulburn's annual meeting in Melbourne last week. "The [dairy] industry needs to grow and competition is good for growth dynamics."
