China’s Huishan Dairy listing raises $1.3bn

China has a newly minted billionaire after the chairman of Liaoning Huishan Dairy watched his near 50 per cent stake valued at almost $2.5bn in the milk company’s $1.3bn listing in Hong Kong.

Yang Kai, who sold HK$1.6bn ($200m) worth of stock in the initial public offering, entered the milk business in 2002 when he became general manager of the local government-run Shenyang Dairy in Liaoning province, northeast of Beijing.

The dairy industry is booming in China as increasing numbers of the country’s middle class start to consume more milk and other dairy products, while a scandal over tainted milk from Fonterra, New Zealand’s biggest milk producer, has had a positive effect on the reputation of Chinese companies.

“This sector has been popular with investors, especially since Fonterra’s problems and China’s ban on imports from New Zealand,” said one banker involved in the share sale.

Huishan saw very strong Asian and international demand for its Hong Kong share sale with the deal priced at the top of its expected range at HK2.67 per share, according to bankers who worked on the deal, which values the company at HK$38.5bn.

The share sale will raise $1.3bn in gross proceeds of which about $870m is new money that the company will use to expand its 110,000-strong dairy herd.

The rest of the money is going to existing owners who are selling shares, mainly Mr Yang, Huishan’s chairman, who will control 49.7 per cent of the company after the listing. Mr Yang becomes one of the 50 richest people in China, going by the 2012 rich list from the Hurun Report, a wealth tracker.

Mr Yang built Huishan as a holding company after the milk scandals that tainted China’s dairy industry erupted in 2008. Huishan invested in feed supplies and other assets for the Shenyang Dairy company and became a big producer of alfalfa. It also bought dairy processing plants and later took full control of Shenyang Dairy itself.

Another Hong Kong billionaire also did well out of the deal. Cheng Yu Tung, patriarch of Hong Kong’s Chow Tai Fook private jewellery and property empire, is left with a stake worth about $460m, having sold about $40m worth of stock in the IPO.

Mr Cheng, who with other investors put a total of $300m into Huishan two years ago, is expected to sell more shares into the overallotment option once allocations have been made later on Thursday.

Huishan is the third large dairy products company to list in Hong Kong after China Modern Dairy and Mengniu. The IPO comes at a time when government policies and economic realities are forcing the industry to consolidate, putting many small farmers out of business.

Chinese people still drink less than half as much milk as their Asian peers on a per-capita basis, according to analysts, but growing demand has created shortages in fresh milk and lifted imports of powdered milk fivefold since 2008.