Baby formula maker China Feihe seeks up to US$1.14bn in Hong Kong IPO

CHINA – China Feihe, a Beijing-based infant milk formula producer, has initiated taking investor orders for its Hong Kong initial public offering (IPO) which could raise up to HK$8.9 billion (US$1.14 billion).

According to a Bloomberg report, the infant formula maker is offering 893.3 million shares at HK$7.50 to HK$10 per share, which could give the company a market capitalization of between US$8.5 billion to US$11.4 billion.

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This offering will at least be Feihe’s second attempt to conduct an IPO in Hong Kong. The company first applied for a listing in the stock exchange in May 2017.

The Morgan Stanley Private Equity Asia-backed company shelved its listing 2017 application due to restructuring of its corporate structure followed by its acquisition of Vitamin World, one of the largest nutritional supplement makers in the Unites States.

Feihe relaunched the IPO this year. The infant milk formula maker plans to use the proceeds for purposes including offshore debt repayment, potential acquisitions and funding the operation of a new manufacturing plant.

According to a preliminary prospectus, JPMorgan Chase, China Merchants Securities, CCB International Holdings are joint sponsors of the offering. Feihe is expected to stop taking investor orders November 5 before beginning trading on Novevember 13.

The dairy company went private from the New York Stock Exchange in 2013 amid a wave of delistings by US-traded Chinese firms.

Feihe is among the few Chinese infant milks formula markers who have managed to sustain the foreign and domestic battle in the Chinese baby formula market.

The domestic baby formula industry met its watershed moment in 2008 when a tainted milk scandal affected about 300,000 consumers, spurring demand for products by international firms over locally-produced ones.

In a bid to restore consumer confidence, the Chinese government in June this year released a plan to increase the output of homegrown baby formula.

The government aims to achieve 60% self-sufficiency rate along with improving quality and bolstering consumer confidence for domestic brands in the country’s US$27 billion infant-formula industry.

The newly-announced plan will also support domestic dairy producers in acquiring or setting up overseas bases for milk supply as well as tightening regulations on milk-powder imports and online sales platforms.

Dairy company’s in China have been expanding overseas as the global infant formula market is anticipated to surpass US$103 billion by 2026.

Feihe invested C$300 million (US$225 million) in a production plant in Ontario in partnership with Canada Royal Milk in 2017, while Inner Mongolia Yili Industrial Group Co. have invested in facilities in the US and New Zealand.

Mengniu Dairy, one of China’s largest dairy companies has also offered to acquire Australia’s leading organic infant formula producer, Bellamy’s for approximately AUS1.5 billion ($1 billion).

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