Insider Flash: Foreign investors buy stake in Chinese milk drink maker

09/01/2007 - Three private equity groups have spent US$73 million on a stake in Chinese firm Taizini, a producer of probiotic milk drinks.

UK-based Actis Capital, Morgan Stanley and Goldman Sachs Group acquired about a third of the Hunan dairy company's shares during December, said its investment director Yao Xin.

China's dairy industry is growing rapidly and all of the leading players have already attracted foreign investment. The next wave of investment is therefore expected to be in smaller, regional dairies such as Taizini.

The Hunan company's focus on probiotic products, still very new to the Chinese market, has made it an attractive buy. Probiotic bacteria such as lactobacillus are said to protect the health of the digestive system and also boost immunity, and Chinese consumers are known to be interested in the health benefits of foods.

Taizinai, set up in 1997, now claims to have a 76.2 per cent share of China's probiotic drinks market. But the sector is still small compared with that of Europe and Japan. Probiotic dairy products account for less than 5 per cent of China's total dairy market, compared with about 80 per cent in Japan and Europe.

"In China, this [probiotic] sector is developing by 25 per cent every year, which demonstrates huge demand and great market potential," Yao told AP-Foodtechnology.com.

Taizinai plans to use the proceeds of the share sale to build two new factories in Jiangsu and Sichuan provinces, Yao said. Currently, the company has five research and production sites in Hunan, Beijing, Hubei, Jiangsu and Sichuan provinces.

In addition, Taizinai is planning an IPO although it has not yet decided where it will list. A Bloomberg report said that the firm has met with NYSE group chief executive John Thain to discuss a potential New York share sale.

"Yao said preparation for the listing "should probably be finished by the middle of this year" .

Company chairman Li Tuchun told the China Daily that after listing the firm will make a series of mergers and acquisitions, targeting both domestic and overseas manufacturers.

Taizinai is aiming to grow its sales from CNY1.8 billion (€177m) last year to CNY10 billion in three years. By 2017, the company's revenue is expected to reach CNY100 billion, Li told the paper.

Of the new owners, Actis, which is also an investor in one of China's biggest dairies, Mengniu, invested the biggest amount in Taizinai - US$40 million - while Morgan Stanley invested US$18 million and Goldman Sachs US$15 million.

The rest of the shares are owned by Li and senior management.
Source: ap-foodtechnology.com