New Zealand dairy giant Fonterra sells China farms to reduce debt

New Zealand dairy co-operative Fonterra has agreed to sell its farms in China to local partners for a total of 555 million New Zealand dollars (US$369 million) to reduce debt, the company said in a statement Monday.

The sale is believed to be a part of Fonterra's review and trimming of its investment portfolio as it targets reducing debt.

Fonterra announced on September 18 that its 2019/20 net debt remains 4.7 billion New Zealand dollars despite a better earning performance. 

Inner Mongolia Natural Dairy, a subsidiary of China Youran Dairy Group, has agreed to purchase Fonterra's two farming-hubs for 513 million New Zealand dollars.

Separately, Fonterra has agreed to sell its 85 percent interest in a local farm to Beijing Sanyuan Venture Capital, for 42 million NZ dollars. Sanyuan has a 15 percent minority shareholding in the farm and exercised their right of first refusal to purchase Fonterra's interest.

Fonterra CEO Miles Hurrell said the company had demonstrated its commitment to the development of the Chinese dairy industry in building the farms.

For the last 18 months, the company has been reviewing its business "to ensure our assets and investments meet the needs of the co-op today," it said.

Hurrell said that China remained one of the company's strategic markets. "Selling the farms will allow us to focus even more on strengthening our food service, consumer brands and ingredients businesses in China." .

Completion of the sale, which is subject to anti-trust clearance and other regulatory approvals in China, is expected to occur within this financial year.

In wake of big losses in the 2018/19 financial year, the company said last year it would write down the value of several of its businesses in China, Brazil, Venezuela, Australia and New Zealand by 820 million to 860 million NZ dollars.

It has also sold its leading ice cream branch Tip Top for 380 million New Zealand dollars in 2019, as it looks to trim its portfolio. The iconic ice cream brand, with a history of more than 80 years, was incorporated into Fonterra in 2001.