Fonterra's Chinese baby food stake dives

NOSEDIVE: The share value of Fonterra's baby food partner Beingmate has more than halved in three weeks. PHOTO/AFP

Beingmate Baby & Child Food Co shares have more than halved in value on the Shenzhen stock exchange over the past three weeks, pushing their price 21 per cent below what Fonterra Cooperative Group paid for its 18.8 per cent stake in the Chinese infant formula maker.

Beingmate shares fell 9.6 per cent to 14.30 yuan, below the 18 yuan apiece that the Auckland-based dairy co-operative paid for 192.4 million shares in March.

The shares have more than halved from a record 30.95 yuan on the Shenzhen exchange in mid-June, as the Chinese stock exchange abruptly pulled back after surging 100 per cent since the start of the year.

The decline in the shares only amounts to a $16.6 million loss in New Zealand dollar terms compared to the $755 million ascribed to the holding when it was first bought, because the Kiwi has dropped 10 per cent against the yuan in that time.

Fonterra and Beingmate announced their global partnership last August to meet China's growing demand for infant formula and increase export volumes of Fonterra's Anmum infant formula brand. At the time, Fonterra had been hoping for a 20 per cent stake in the firm and flagged it would cost about $615 million.

Last month, Fonterra sold its third dim sum bond, raising 1 billion yuan, or $230 million, with the proceeds helping fund the stake in Beingmate.

The partnership will create a fully integrated global supply chain from the farm gate direct to China's consumers, using Fonterra's milk pools and manufacturing sites in New Zealand, Australia, and Europe. The Chinese government last year imposed stricter regulations on products such as infant formula amid concerns over food safety.

In February, Beingmate reported a 90 per cent drop in operating profit in its preliminary results for the 2014 financial year to 65.7 million yuan. Revenue was also down by 17 per cent.

Units in Fonterra Shareholders' Fund, which give holders access to the co-operative's dividend stream, were unchanged at $4.88.

The units touched a record low of $4.58 in mid-June after Fonterra posted a 16 per cent drop in first-half profit to $183 million in the six months to January 31, which it said reflected tough dairy conditions, while also trimming its guidance for dividends to a range of between 20-30c, from 25-35c.BusinessDesk