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Safety concerns over food investments
By Zhang Fengming |
June 2, 2010, Wednesday
|
Online Edition
Online Edition
PRIVATE equity companies prefer to invest in food companies that focus on safety issues after tainted milk scandals in China, industry watchers said yesterday in Shanghai.
"When investing in food companies, we're more concerned with food safety issues as the latest food safety crisis showed it can be a disaster for listed companies," said Meng Liang, managing director of D.E. Shaw & Co (Asia Pacific) Ltd.
Animal feed is one example where companies could control the quality of ingredients, he said. D.E. Shaw & Co has US$22 billion of global investment and committed capital as of April 1.
In 2008, China 's dairy industry was hit severely when the industrial chemical melamine was found in products of major dairy groups including China Mengniu Dairy Co, Yili Industrial Group Co Ltd and Bright Dairy, all listed companies.
The crisis wiped off 20 billion yuan (US$2.93 billion) off Hong Kong-listed Mengniu's market value within one month of the scandal breaking.
China introduced new food safety laws on June 1 last year, banning scrutiny-free supply systems for food companies.
"Foreign investors, including private equity firms, are still very interested in China's food companies, banking on the rising economy and bigger desire for quality of life," said Wang Qing, a Freshfields Bruckhaus Deringer partner in China. "The new law strengthened their confidence in the industry but more are needed to assure the efficiency of implementation."
Foreign companies are seeking a controlling stake when investing in China's food companies for a bigger say, he added.
The Ministry of Commerce in March 2009 rejected Coca-Cola's US$2.4-billion bid to buy China 's top juice maker, China Huiyuan Juice Group, over competition concerns.
"The Coke-Huiyuan case may signal foreign investors, who will be more cautious investing in domestic firms," Wang said. "But we're seeing positive signs in the sector with the ministry more open and experienced on the issue."
"When investing in food companies, we're more concerned with food safety issues as the latest food safety crisis showed it can be a disaster for listed companies," said Meng Liang, managing director of D.E. Shaw & Co (Asia Pacific) Ltd.
Animal feed is one example where companies could control the quality of ingredients, he said. D.E. Shaw & Co has US$22 billion of global investment and committed capital as of April 1.
In 2008, China 's dairy industry was hit severely when the industrial chemical melamine was found in products of major dairy groups including China Mengniu Dairy Co, Yili Industrial Group Co Ltd and Bright Dairy, all listed companies.
The crisis wiped off 20 billion yuan (US$2.93 billion) off Hong Kong-listed Mengniu's market value within one month of the scandal breaking.
China introduced new food safety laws on June 1 last year, banning scrutiny-free supply systems for food companies.
"Foreign investors, including private equity firms, are still very interested in China's food companies, banking on the rising economy and bigger desire for quality of life," said Wang Qing, a Freshfields Bruckhaus Deringer partner in China. "The new law strengthened their confidence in the industry but more are needed to assure the efficiency of implementation."
Foreign companies are seeking a controlling stake when investing in China's food companies for a bigger say, he added.
The Ministry of Commerce in March 2009 rejected Coca-Cola's US$2.4-billion bid to buy China 's top juice maker, China Huiyuan Juice Group, over competition concerns.
"The Coke-Huiyuan case may signal foreign investors, who will be more cautious investing in domestic firms," Wang said. "But we're seeing positive signs in the sector with the ministry more open and experienced on the issue."
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