"We are also aware that as part of this announcement, four Beingmate directors, including the two directors designated by Fonterra, have expressed reservations relating to some aspects of Beingmate's financial management and reporting practices," Fonterra said.
"We have total confidence in the judgement of our designated directors - Johan Priem and Christina Zhu - and that their actions are in the best interests of Beingmate and all of its shareholders," Fonterra said.
"We are concerned about the reservations they have expressed and are seeking clarification on the matters of concern," it said.
Beingmate has struggled to perform since Fonterra spent $755m on acquiring its stake in 2015, and analysts have long questioned whether the holding was big enough for Fonterra to influence the company's direction.
"In my view there is a question regarding how well-placed Fonterra is to execute on aspects of its strategy outside of New Zealand when it doesn't have sufficient access to capital to make material offshore investments where it can control its destiny," Arie Dekker, head of institutional research at First NZ Capital, said.
"Partnerships and minority investments like Beingmate may provide a lower capital entry point into offshore opportunities but they bring additional risks with them as well, that comes with a lack of control, and the Beingmate partnership may well highlight that issue," he said.
Fonterra said that despite Beingmate's recent performance, the strategic rationale for its broader partnership with Beingmate still stood.
Beingmate should, in theory, be benefiting from a change in regulation in China to allow only government-registered infant formula producers to sell their product.
"We are disappointed that Beingmate is not maximising the opportunity created by the early registration of its 51 formulations under the new registration rules," Fonterra said.
"The Chinese market is growing rapidly and within five years, forecast demand for infant and baby dairy products will be more than the total for other global markets, so the potential remains," it said.
China is one of Fonterra's largest global markets, accounting for $3.4 billion of sales revenue and a normalised earnings contribution of greater than $200 million in 2017.
Upon entering their alliance in 2015, Fonterra chief executive Theo Spierings said China was a key strategic market for Fonterra, and the global partnership would provides significant growth potential for both companies. Fonterra has a 49/51 per cent joint venture with Beingmate to make formula at Darnum, Victoria.
Beingmate has suffered from a string of disappointments and earnings downgrades in recent years.
"It has not gone well for the them (Fonterra) at all," Mark Lister, head of private wealth research at Craigs Investment Partners, said.
Analysts said it looked like more writedowns would be the pipeline for Fonterra's holding when the company reports its first-half result in March.
Last year, Fonterra booked an impairment loss of $35 million on its Beingmate stake, reducing the carrying value to $617m, which it said reflected Beingmate's share price slide and recent losses.
Beingmate's shares last traded at 6.03 Chinese yuan, down from 14 yuan last May and down from the 18 yuan per share paid by Fonterra in 2015.
