PE-Backed China Shengmu Plans $169M HK IPO

Inner Mongolia-based Chinese organic diary firm China Shengmu Organic Milk Limited is planning to raised a total of HK$1.31 billion (US$169 million) in an initial public offering in Hong Kong, according to a regulatory filing Shengmu submitted to the Hong Kong Stock Exchange on June 30.

China Shengmu is planning to issue 445 million shares in an indicative price range of HK$2.39 to HK$2.95 per share.

Baohua Investments, a wholly-owned subsidiary of COFCO (Beijing) Agricultural Industrial Equity Investment Fund, has agreed to subscribe shares worth a total of US$30 million as a cornerstone investor for the IPO.

In January 2014, Goldman Sachs (Beijing) and Baring Private Equity Asia acquired 15.41% of China Shengmu for RMB685.4 million (US$110.5 million) from existing investors. Goldman Sachs acquired a 7.7% stake, and Baring took a 7.71% stake.

In February 2014, Sequoia Capital, King Capital and BOCI Investment acquired a total of 12.54% stake of China Shengmu for an aggregate of RMB648.2 million (US$104.5 million). The three parties each own 51.07%, 30.08% and 18.85% of the entity that conducted the transaction.

It’s unclear if these investors will be selling shares during the IPO.

China Shengmu says it will use the net proceeds from the float on developing its dairy business as well as repaying debt.

According to China Shengmu’s website, it had a 54.2% market share in terms of organic raw milk production volume and a 58% market share in terms of herd size in China.

In 2013, the company recorded revenue and net profit of RMB1.14 billion and RMB327 million respectively, up 63% and 67% from a year ago.

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