Beingmate shares drop to two and a half year low in Chinese stock rout

Beingmate Baby & Child Food Co shares fell to their lowest since February 2013, after being caught up in the global sharemarket rout, which has dented Chinese equity markets, slicing more than $200 million from Fonterra Cooperative Group's [NZX: FCG] investment in the Hanzhou-based infant formula maker.

The Shenzhen stock exchange-listed shares dropped 10% to 11.87 Chinese yuan, the lowest level since New Zealand dairy exporter Fonterra paid 18 yuan a share for an 18.8% stake in the Chinese infant formula maker. Beingmate's shares had recovered after more than halving in value in July but have tumbled 19% in the latest Chinese equity selloff.

China's share markets have been hit the hardest over the past three days after a gauge of manufacturing hinted at a slowing economy in the world's most populous nation, spooking investors across the globe. The Shanghai Composite was down 4.1% in early trading, following an 8.5% slump yesterday.

In March, Fonterra paid 3.46 billion yuan for the stake, or $756 million, at the time. That has dropped to 2.28 billion yuan at today's price, and $546.5 million at the current cross-rate.

Fonterra and Beingmate announced their global partnership last August to help meet China's growing demand for infant formula and increase export volumes of Fonterra's Anmum infant formula brand. At the time, the world's largest dairy exporter had sought as much as 20% of the company, and flagged it would cost about $615 million.

The New Zealand dairy exporter raised one billion yuan through a dim sum bond in June to help pay for the Beingmate acquisition.

Tumbling global dairy prices prompted ratings agency Standard & Poor's this month to put Fonterra's 'A' long-term and 'A-1' short-term ratings on CreditWatch negative, saying "high debt levels reflecting the sizable acquisition of a shareholding in China-based Beingmate, combined with peak capital expenditure, at this low point in the dairy price cycle will place Fonterra's key credit metrics under pressure in the short term."

Fonterra has slashed the amount of milk powder it's selling through the GlobalDairyTrade online auction in a bid to prop up international dairy prices that have been in a slump this year. The dairy exporter slashed its forecast payout to farmers for the current season and is looking at ways to drive a more efficient operation, hiring management consultancy McKinsey & Co to advice on the review which has already seen 523 jobs go.

Units in the Fonterra Shareholders' Fund, which give investors access to Fonterra's dividends, fell 0.6% to $4.82.

(BusinessDesk)