New Zealand dairy giant Fonterra sells China farms to reduce debt

WELLINGTON (XINHUA) – New Zealand dairy co-operative Fonterra has agreed to sell its farms in China to local partners for a total of NZD555 million to reduce debt, the company said in a statement yesterday.

The sale is believed to be a part of Fonterra’s review and trimming of its investment portfolio as it targets reducing debt.

Fonterra announced on September 18 its 2019/20 net debt remains NZD4.7 billion despite a better earning performance. The company vowed to follow through on its commitment to financial discipline, which has increased its financial strength.

Inner Mongolia Natural Dairy Co Ltd, a subsidiary of China Youran Dairy Group Limited (Youran), has agreed to purchase Fonterra’s two farming-hubs for NZD513 million.

Separately, Fonterra has agreed to sell its 85 per cent interest in a local farm to Beijing Sanyuan Venture Capital Co Ltd (Sanyuan), for NZD42 million. Sanyuan has a 15 per cent minority shareholding in the farm and exercised their right of first refusal to purchase Fonterra’s interest.

Fonterra CEO Miles Hurrell said the company had demonstrated its commitment to the development of the Chinese dairy industry in building the farms.

For the last 18 months, the company has been reviewing its business “to ensure our assets and investments meet the needs of the co-op today”, it said.

Hurrell said the sale of the farms would allow Fonterra to prioritise the areas of its business where it has competitive advantages.

Hurrell said that China remained one of the company’s strategic markets.

“Selling the farms will allow us to focus even more on strengthening our food service, consumer brands and ingredients businesses in China.

“We will do this by bringing the goodness of New Zealand milk to Chinese customers in innovative ways and continuing to partner with local Chinese companies to do so. Our investment in R&D and application centres in China will support this direction,” said Hurrell.

Completion of the sale, which is subject to anti-trust clearance and other regulatory approvals in China, is expected to occur within this financial year. In wake of big losses in the 2018/19 financial year, Fonterra has shifted its strategic direction and put New Zealand to the fore in 2019.

The company was looking to extract more value from local milk production, and put less emphasis on overseas ventures, including its expansion in China. The company then moved to sell overseas assets, shut underperforming local plants to cut debt and reduce costs.

Last year, the co-operative said it would write down the value of several of its businesses in China, Brazil, Venezuela, Australia and New Zealand by NZD820 million to NZD860 million.

Fonterra has also sold its leading ice cream branch Tip Top for NZD380 million in 2019, as it looks to trim its portfolio. The iconic ice cream brand, with a history of more than 80 years, was incorporated into Fonterra in 2001.