Fonterra has agreed to sell its China farms for a total of NZ$555 million.
Inner Mongolia Natural Dairy Co, a subsidiary of China Youran Dairy Group Limited, has agreed to purchase Fonterra’s two farming-hubs in Ying and Yutian for NZ$513 million.
Fonterra has also agreed to sell its 85 per cent interest in its Hangu farm to Beijing Sanyuan Venture Capital Co for $42 million.
Sanyuan has a 15 per cent minority shareholding in the farm and exercised their right of first refusal to purchase Fonterra’s interest.
Fonterra chief executive officer Miles Hurrell said in building the farms, Fonterra has demonstrated its commitment to the development of the Chinese dairy industry.
“We don’t shy away from the fact that establishing farms from scratch in China has been challenging, but our team has successfully developed productive model farms, supplying high quality fresh milk to the local consumer market,” he said.
“It’s now time to pass the baton to Youran and Sanyuan to continue the development of these farms.”
Mr Hurrell said the sale of the farms will allow the co-op to prioritise the areas of its business where it has competitive advantages.
“For the last 18 months, we have been reviewing every part of the business to ensure our assets and investments meet the needs of the co-op today,” he said.
“Selling the farms is in line with our decision to focus on our New Zealand farmers’ milk.”
China currently receives about one quarter of Fonterra's productions.
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.
The transaction value is subject to customary purchase price adjustments, and exchange rate movements.
Any gains or losses on the sale would be normalised upon completion of the sale.
Fonterra expects to use the cash proceeds from the two transactions to pay down debt, as part of its previously announced overall debt reduction programme.