UPDATE 1-China Mengniu Dairy to sell 20 pct to Hopu, SOE

(Add details and background)

HONG KONG, July 6 (Reuters) - Chinese private equity fund Hopu Investment Management and a state-owned enterprise are expected to buy about 20 percent of China Mengniu Dairy (2319.HK), in a deal worth roughly $800 million, according to a source familiar with the matter.

Hopu is a fund founded by Fang Fenglei, chairman of Goldman Sachs' (GS.N) China joint venture. Mengniu was one of the Chinese dairies involved in last year's tainted milk scandal.

Hopu and Mengniu representatives were not immediately available for comment. It was not clear which of China's state-owned enterprises was involved in the deal.

Shares of the Chinese dairy company have surged more than 89 percent this year to end at HK$19.10 on Friday.

China Mengniu Dairy, one of several companies in China found to have sold milk products tainted with melamine last year, in June said its sales were 20 percent lower than normal for the first five months of 2009. The company said the negative impact of the scandal was basically over and its products were 100 percent safe to consume.

At least six babies died from drinking infant formula contaminated with the toxic industrial compound, which can falsely raise the results on tests for protein levels.

The tainted milk scandal triggered a drop in sales for Mengniu, which lost market share to rivals Yili (600887.SS) and Bright Dairy (600597.SS), analysts said.

A Hopu-Mengniu agreement would mark the second major investment in a Chinese dairy company by a private equity firm within the last month.

Last month, Kohlberg Kravis Roberts & Co. [KKR.UL] said it had completed a series of investments in Ma Anshan Modern Farming Co Ltd, a leading dairy farm company headquartered in China's central Anhui province. [ID:nHKG37172].

Last week, Hunan Taizinai Group, a top dairy products maker, denied a Chinese media report it was in talks to sell assets to the world's biggest food group Nestle AG (NESN.VX). (Reporting by Michael Flaherty and Donny Kwok; Editing by xxxx)