Fonterra sells farms in China for $ 555 million to pay off debt

Fonterra agreed to sell its China farms for a total of $ 555 million to Inner Mongolia Natural Dairy Company, a subsidiary of China Youran Dairy Group.

Separately, Fonterra said it had agreed to sell its 85 percent stake in its Hangu farm to Beijing Sanyuan Venture Capital Co for $ 42 million.

Sanyuan has a 15 percent minority stake in the farm and exercised its right of first refusal to buy Fonterra’s stake.

READ MORE:
• Fonterra performs much better, but CEO Miles Hurrell’s pay
• Premium: Fonterra records a profit of $ 659 million and pays a dividend of 5 cents
• Fonterra falls in the ranking of the 20 main world dairy companies
• How Asia Pacific Markets Help Achieve Fonterra’s Three Goals

Fonterra expects to use the cash proceeds from the two transactions to pay off the debt, as part of its previously announced overall debt reduction program.

CEO Miles Hurrell said that by building the farms, Fonterra had demonstrated its commitment to the development of the Chinese dairy industry.

“We have worked closely with local stakeholders, sharing our experience in agricultural techniques and animal husbandry, and we contribute to the growth of the industry,” he said in a statement.

Fonterra has been reviewing its business for the past 18 months “to ensure that our assets and investments meet the needs of the cooperative today.”

“Selling the farms is in line with our decision to focus on milk from our New Zealand farmers,” he said.

Over the past 10 years, Fonterra has invested around $ 1 billion in establishing farms in China.

Last year, the cooperative said it would reduce the value of several of its businesses in China, Brazil, Venezuela, Australia and New Zealand by $ 820 million- $ 860 million, including $ 200 million related to China Farms.

In today’s statement, Fonterra said it had worked closely with local stakeholders, shared its experience in agricultural techniques and animal husbandry, and contributed to the growth of the industry.

“We do not shy away from the fact that establishing farms from scratch in China has been a challenge, but our team has successfully developed productive model farms, supplying fresh, high-quality milk to the local consumer market,” Hurrell said.

“Now is the time to pass the baton to Youran and Sanyuan to continue the development of these farms,” ​​he said.

Hurrell says that the sale of the farms will allow the cooperative to prioritize the areas of its business in which it has competitive advantages.

“China continues to be one of Fonterra’s most important strategic markets, receiving around a quarter of our production. The sale of the farms will allow us to focus even more on strengthening our foodservice, consumer brand and ingredient businesses in China. “, He said.

The sale, which is subject to antitrust clearance and other regulatory approvals in China, is expected to occur within this financial year.