Yili Spinoff Youran Dairy Seeks $799 Million in Hong Kong IPO

China Youran Dairy Group Ltd., a spinoff of dairy giant Inner Mongolia Yili Industrial Group Co., is seeking to raise as much as HK$6.2 billion ($799 million) in a Hong Kong initial public offering (IPO).

The company and private equity firm PAG are selling 715 million shares at a suggested offering price range of HK$6.98 to HK$8.66 a share, 10% of which would be sold in Hong Kong and 90% globally, according to a prospectus filed with the Hong Kong Stock Exchange.

Investors can order shares starting Monday, and the offering is expected to be priced June 10. The stock is set to begin trading June 18.

At the high end of the suggested offering price range, the dairy company would be valued at HK$32.87 billion, compared with about HK$13.2 billion for its main rival China Modern Dairy Holdings Ltd., a subsidiary of China Mengniu Dairy Co.

At the high end of the expected offering price, Youran Dairy would have a 17.7 price-to-earnings ratio, the highest among Hong Kong-listed Chinese diary producers.

Hong Kong’s new listings are tracking at a slow pace. The most recent offering, property manager Central China Management Co., dropped 12% on its debut last week, while the $3.2 billion IPO of JD Logistics Inc., the warehouse and shipping arm of e-commerce giant JD.com Inc., priced toward the lower end of its marketed range last month.

Youran Dairy’s share sale attracted two cornerstone investors, Citic Prudential and Harvest Private Wealth, which agreed to subscribe for about HK$388 million of shares, based on the mid-point of the price range, the prospectus shows.

The company plans to use 75% of the proceeds for investment projects in the next two years, including ongoing construction and new pastures; 15% will be used to purchase cows; and the rest will be for general business purposes.

Founded in 1984, Youran Dairy produces and sells fresh milk and engages in related animal farming activities in Inner Mongolia. It was a wholly owned subsidiary of Yili until Hong Kong-based private equity firm PAG invested in 2015.

PAG holds 42.9% and Yili 40% of the business. After the IPO, PAG’s stake will be reduced to 31.5%, and Yili’s to 34.8%. PAG also owns convertible debt of the company. If converted, it would own 40% of the company, leaving it the controlling shareholder.

Youran Dairy recorded a net profit of 1.54 billion yuan ($241 million) in 2020, up from 801.9 million yuan in the previous year, according to its prospectus. Yili is its biggest client, contributing about 57% of revenue last year.

Huatai International and Credit Suisse Group AG are joint sponsors for the listing.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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