HONG KONG, Sept 24 KKR & Co LP is
leading a joint venture that plans to invest $140 million in two
large dairy farms in China, said a person with direct knowledge
of the matter, as the private equity firm returns to the
KKR is linking up again with China's Modern Dairy Holdings
Ltd and CDH Investments, a Chinese private equity
firm, to build two, 10,000-cow farms over a two-year period, the
KKR and CDH previously invested in Modern Dairy, selling out
of their stakes in the company earlier this year to lock in a
profit after a five-year holding - a fairly standard investment
horizon for the private equity industry. The new agreement
reflects continued optimism over Chinese demand for high-quality
milk products and room in the industry to grow.
China's expanding middle class is driving sales of dairy
products, expected to double to $89 billion a year, according to
market research firm Frost & Sullivan, with the country's dairy
consumption still well below other large countries.
The two farms will be located in Shanghe county in China's
Shandong province, the person with knowledge of the matter said.
New York-based KKR will hold 61.5 percent of the venture, while
CDH will own 20.5 percent and Modern Dairy 18 percent, the
Officials at KKR declined to comment, while CDH and Modern
Dairy could not be immediately reached outside normal business
The joint venture comes at a time when China's government,
aware of the demand for high-quality milk, is trying to
streamline the fragmented industry.
A 2008 tainted milk scandal in China crushed demand for
local products and made officials aware that they needed to
consolidate the industry and improve safety standards.
China's push to improve the industry has encouraged domestic
dairy companies to seek acquisitions and stock offerings to
support the fast-growing sector.
KKR and CDH invested in Modern Dairy in 2008, which listed
on the Hong Kong stock exchange two years later. China Mengniu
Dairy Co Ltd bought the KKR and CDH stakes earlier
this year, allowing KKR to triple its original investment,
Reuters reported at the time.
With the new dairy farm venture, KKR's exit from the Modern
Dairy stake appears more to do with locking in a profit and
exiting a deal before a new fund, rather than selling out of an
industry it thought would slow. KKR just closed its $6 billion
Asia private equity fund, the largest such fund ever raised.