Inner Mongolia Yili Industrial Group Co. jumped by the trading limit after the company said it would acquire a 4.6 billion yuan ($680 million) stake in China Shengmu Organic Milk Ltd., helping the milk producer win over increasingly affluent Chinese consumers seeking healthier food options.
Hohhot, China-based Yili also plans to raise as much as 9 billion yuan via a private placement for four investments, including the 37 percent stake deal for Hong Kong-listed Shengmu, it said in a statement to the Shanghai stock exchange late on Friday.
Yili shares rose as much as 10 percent to 17.72 yuan in Shanghai trading Monday, after resuming from a trading suspension. Shengmu, which says on its website it is China’s largest organic milk company, requested a temporary trading halt Monday. Hong Kong’s stock market was closed on Friday due to a typhoon.
China’s milk companies have sought to win back customers including with new products, and collaborating with dairy producers based outside China after confidence in the industry was hit by a series of food safety scandals. In 2008, a case involving melamine-tainted milk in 2008 that was blamed for the death of infants led buyers to shun Chinese dairy products.
“China’s appetite for organic milk will likely rise rapidly in coming years,” said Thomas Jastrzab, a Bloomberg Intelligence retail analyst. “Yili’s investment in Shengmu Organic Milk should help it better capitalize on this trend, particularly as it seeks to win over more affluent urban consumers.”
Shengmu shares have jumped 33 percent so far this year through Oct. 20, while Yili had fallen 2 percent this year through Sept. 14, before trading resumed.
Yili is also using proceeds from the placement to invest about 1 billion yuan in an operations center, 538 million yuan in a dairy production line in New Zealand, and about 2.5 billion yuan in a project to improve the quality of dairy products in mainland China, according to its statement.
Investor confidence toward China’s dairy industry has improved amid speculation milk prices will recover, according to Mizuho Securities Asia Ltd., fuelling the surge for China Modern Dairy Holdings Ltd. and hurting short-sellers of the stock.
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