Fonterra set to sell its farms in China to local companies for US$369m to reduce debt

CHINA – Fonterra has agreed to offload its farms in China to a series of local companies in China for 555 million New Zealand dollars (US$369 million as it aims to focus on its home markets and reduce debt.

The deal saw the dairy giant’s two farming hubs in Ying and Yutian sold for US$513 million, and in a separate deal it agreed to sell its 85 percent stake in a local farm for US$42m.

“It’s fair to say it’s been a tough journey for us along the way, we had to take an impairment to that asset in 2019 and again in 2020 so certainly they haven’t been as operationally effective as we would have liked,” said Fonterra chief executive Miles Hurrell.

“That said, we have made significant progress of late and that’s put us in a better position to sell these assets. It was always part of our plan to support the local dairy industry in China, that was certainly the intention going in… it wasn’t the intention to lose money, but the strategic intent still remains.”

“It’s fair to say it’s been a tough journey for us along the way, we had to take an impairment to that asset in 2019 and again in 2020 so certainly they haven’t been as operationally effective as we would have liked,”

Miles Hurrell – chief executive, Fonterra

“We still have some work to do around our balance sheet, so it’s intended at this point to pay down debt and focus on that in the near term.”

The farming hubs would be sold to Inner Mongolia Natural Dairy Co., a subsidiary of China Youran Dairy Group will acquire Fonterra’s two farming hubs located in Ying and Yutian for NZD 513 million (US$341 million).

Meanwhile, Beijing venture capital firm Sanyuan will purchase Fonterra’s remaining 85% interest in its Hangu farm for NZD 42 million (US$28 million), taking its ownership to 100%

According to Fonterra, selling the farms is in line with its decision to focus on its New Zealand farmers’ milk. Following the transactions, the company also believes  it will be able to strengthen its efforts in its foodservice, consumer brands and ingredients businesses in China.

“We will do this by bringing the goodness of New Zealand milk to Chinese customers in innovative ways and continuing to partner with local Chinese companies to do so. Our investment in R&D and application centres in China will support this direction,” said Hurrell.

Hurrell said its yogurt business, a partnership with Nestle, located in Brazil would likely be next on the block.

“We’re in discussions there around selling that asset. We’ve also announced a strategic review of our joint venture in China, but our key asset is Brazil and discussions are underway.

According to Hurrell, China remains one of Fonterra’s most important strategic markets, receiving around a quarter of its production.

According to FoodBev, the deal, which is subject to anti-trust clearance and other regulatory approvals in China, is expected to close within the financial year.

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