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Modern Farm, KKR close to $100m deal

By Ding Qingfen (China Daily)
Updated: 2008-12-04 09:18

A consumer shops for dairy products in a supermarket in Beijing. File photo

The US-based private equity fund Kohlberg Kravis Roberts (KKR) will acquire a stake in Modern Farm Group Co Ltd, a Chinese dairy producer in East China's Anhui province.

The deal, the first of its kind since an outbreak of the tainted-milk scandal in China in September, could be seen bolstering confidence in the long-term prospects of the country's troubled dairy industry.

A source from Modern Farm told China Daily, on the condition of anonymity, that KKR and Modern Farm have signed the deal, which "will be finalized soon, probably early next year."

A Reuters report said KKR will spend $100 million in buying Modern Farm's stake, and other investors may pour $150 million more into the company.

Some local media reported that China Mengniu Dairy could also buy into Modern Farm, but the source from Modern Farm said "the reports are not true".

In September, a slew of dairy companies including big local names such as Inner Mongolia-based Mengniu and Yili and Hebei-based Sanlu Group were found to have been selling dairy products containing melamine, a chemical that could lead to kidney stones if added into milk in high doses.

The scandal battered the industry. In October, dairy exports from the country dropped 92 percent year-on-year, according to General Administration of Customs (GAC).

Modern Farm, founded in 2005, has built three farms with each having more than 10,000 cows, and is building another three to four of this kind. Its raw milk has been exclusively supplied to Mengniu, said the source from Modern Farm.

The KKR investment will be mainly used to expand the number of farms, helping the local dairy companies improve their product quality, the source said.