Huishan Dairy Falls in Trading Debut After $1.3 Billion IPO

China Huishan Dairy Holdings Co., the milk producer backed by billionaire Cheng Yu-tung, fell in its Hong Kong trading debut after a $1.3 billion initial public offering that was priced at the top of its marketed range.

The stock closed at HK$2.59, a 3 percent decline from its offer price of HK$2.67, in Hong Kong today. The benchmark Hang Seng Index gained 0.4 percent.

The value of Hong Kong IPOs has reached $7.8 billion this year, poised to surpass the $8 billion for the whole of last year. The value is still far below the $20 billion in 2011, according to data compiled by Bloomberg.

The company’s pricing at the top-end was too aggressive as Hong Kong’s IPO market has not fully recovered, said Ronald Wan, chief China advisor at Asian Capital (HK) Co.

“The high-end price makes it less attractive to investors, who may be waiting on the sideline for lower valuations,” said Wan. “The market is not stable yet and there are no sure-win IPOs.”

The company had offered shares at HK$2.28 to HK$2.67 each as it and investors sold at least HK$10 billion ($1.3 billion) of stock. Huishan was established in 2009 as a raw milk producer, and has moved into the business of selling liquid milk and milk powder products, grain processing and trading.

Expansion Plans

Huishan and its investors sold a total of 3.8 billion shares, with the company raising HK$7.52 billion after deducting underwriting fees, it said yesterday.

The company, based in Shenyang city in northeast China, owned more than 106,000 dairy cows, the second largest herd in the nation, as of end 2012, the company said in its prospectus, citing researcher Frost & Sullivan. Sales rose 92 percent to 2.55 billion yuan ($417 million) in the year ended March from a year earlier, the company said.

About a third of the proceeds will be used to construct 45 new dairy farms in the northeastern province of Liaoning, and another 17 percent to import at least 75,000 cows from Australia or New Zealand over the next three years, it said.

The dairy producer also plans to spend HK$864 million on a milk powder production plant, with an annual capacity of 33,000 tons, which will be completed by March 2017.

Billionaire Holdings

As Huishan Dairy started trading, its founder Yang Kai has become a billionaire with his about 49 percent holding. His shares are worth $2.3 billion, according to data compiled by Bloomberg.

Well Ease Ltd., a British Virgin Islands holding company, will own 1.67 billion shares, according to a Huishan prospectus. Cheng owns an 80 percent stake in Well Ease. The rest of Well Ease is owned by a trust for Katherine Law, daughter of former Goldman Sachs Group Inc. managing director Eddie Law, according to the prospectus.

Cheng, who has a net worth of $19.3 billion, according to the Bloomberg Billionaire’s Index, is Hong Kong’s fourth-richest individual and owns 89 percent of Chow Tai Jewellery Group Ltd. and almost 39 percent of land developer New World Development Co.

China is pushing to raise standards in its dairy industry as consumers’ distrust of local milk has driven them to source products overseas or turn to foreign brands. Formula makers need to own their milk sources and have research and development capability, according to a draft of new rules for the baby-milk industry published in August.

— With assistance by Liza Lin

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