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| Huishan Dairy |
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| Summary of Proposed Investment |
| This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. |
| Project number | 27367 |
| Company name | Shenyang Dairy Co., Ltd. |
| Country |
| China |  |
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| Sector | Dairy Products |
| Environmental category | B |
| Department | Reg Manufact, Agri & Services, ASIA |
| Status | Hold |
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| Date SPI disclosed | May 20, 2009 |
| Projected board date | June 22, 2009 |
| Date revised SPI disclosed | May 22, 2009 |
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| View Environmental & Social Review Summary (ESRS), click here |
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| Overview |
Sponsor/Cost/Location |
Development Impact |
Contacts |
Attachments |
| Project description |
Shenyang Dairy Company Limited, (“Shenyang Dairy” or the “Company”) was originally founded in 1951 as a state owned company that ran into financial distress towards the end of the 1990s due to management problems. Shenyang Dairy was partially privatized in 2002 when 52% was sold to the current sponsors and completely privatized in 2004 when it was transformed into a Wholly Foreign Owned Enterprise. Shenyang Dairy now has 11 self run cattle farms in Liaoning Provinces, a frontier region in northeast China with over 22,000 cows. The downstream dairy processing facilities capacity is 620 tons per day (tpd). The company supplies 67 different products comprising various grades of milk, flavored milk, yoghurt and other milk-based drinks. The company has a unique business model that sources a majority of its milk from its own cattle farms and a smaller portion from nearby big farms under its close supervision.
The project to be implemented by Shenyang Dairy (“the Project”), one of the biggest dairy producers in North Eastern China consists of:
- Installation of canning and packaging machines with a capacity of 50 tons per day to meet the growing demand for its products.
- Build three new cattle farms of 2,500 cows within two years to accommodate natural growth of existing herd and imported cows. This will bring the company’s total herd size up to 31,000 cows.
- Incremental working capital.
- Reduce short term debt to improve liquidity. |
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| Project sponsor and major shareholders of project company |
There are three project sponsors. Mr. Yang Kai, Managing Director and General Manager, a successful Chinese entrepreneur in agribusiness sector. He owns 50% of Shenyang Dairy indirectly through his 100 % ownership of Mighty Global Limited, a BVI company.
Mr. Li Anmin, Chairman and Director. He was a pioneer in introducing Coca Cola into China in the early 1980s and was the Vice President of Coca Cola (China) in 1989. He is also the President of The Yimin Cherish Foundation.
Mr. Charles Diodosio is the 3rd Director and Sponsor. He has worked as Vice President of Beatrice Co, USA. In the 1990's he resigned from Beatrice Co and together with Mr. Li, he invested in agribusiness sector in China. Mr. Li and Mr. Diodosio together held 50% of Shenyang Dairy indirectly through L&D International Co. Ltd., a USA company.
Shenyang Dairy is 100% owned by New Flourish Investment Ltd., a BVI holding company. New Flourish Investment Ltd. is 100% owned by Huishan Dairy Holding Ltd. (“HD”), a Cayman Islands holding company, who is owned 50:50 by L&D International Co. Ltd. and Mighty Global Limited. |
| Total project cost and amount and nature of IFC's investment |
The total project cost is estimated at $79.5 million. The proposed IFC investment consists of:
- equity investment of up to $10 million; and
- A-loan of up to $10 million for IFC’s own account. |
| Location of project and description of site |
| The project will be located in Shenyang and its nearby region in Liaoning Province. Those new dairy farms will be located in rural area near Shenyang city. The new processing capacity will be added in the company’s existing plant in Shenyang New Zone, an industrial zone with easy access to transportation route. |
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| Anticipated development impact of the project |
The project will support the continued expansion of a successful private dairy company in the Liaoning Province. The majority of the investment program is for the development of integrated dairy farms that will provide the company with a reliable source of high quality milk. The company creates significant benefits to the communities where it operates in terms of employment, marketing outlet for local farmers and business opportunities for SMEs.
1) Employment. The company’s operations are located in Liaoning Province. It provides stable employment opportunities for around 2,800 staff, including more than 1,000 female employees.
2) Farmers reached. Shenyang Dairy relies on a large network of farmers to supply its farms with raw materials such as corn, hay and silage. Huishan forward contracts with local farmers to supply the company with feed materials, particularly corn silage. Currently, about 10,000 household farms supply silage to the company. Contracts are used by farmers to obtain financing for the crop cycle from local credit unions. It also purchases part of its milk requirements from around 30 integrated and independent farms. Huishan services these suppliers with field support including nutrition and hygiene advice.
3) SMEs reached. Shenyang Dairy services a network of 259 small sales outlets that only carry its milk products under a franchise agreement. In addition, those 259 independent distributors also service an estimated 50,000 small retailers. The company also has about 600 SME raw material or services providers. |
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| IFC's expected development contribution |
cLong term financing and advice: the company welcomes equity and long term debt investments from credible partners like IFC and other long-term foreign investors introduced by IFC.
Stamp of approval: The company expects IFC’s presence as a knowledgeable partner to induce public confidence when the Company lists on the international markets in the next 3-5 years.
Quality standards: With the help of IFC, the company will try to create an example in China for setting standards for food safety and high quality milk production, thus improving consumer confidence in the domestic dairy supply chain.
Countercyclical role: By providing long term financing for a fundamentally sound company during a global financial crisis.
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| Environmental and social issues - Category B |
This is a category B project according to IFC’s Procedure for Environmental and Social Review of Projects because a limited number of specific environmental and social impacts may result that can be avoided or mitigated by adhering to generally recognized performance standards and guidelines.
The company has various elements of an Environmental & Social Management System (ESMS) in place, and is committed to consolidating these into a single ESMS – including a comprehensive monitoring mechanism – to govern all aspects of its operations. Its operations are ISO9001 and HACCP compliant. Implementation of an integrated management system will allow Shenyang Dairy to ensure adherence to environmental, health and safety, food safety, and social performance requirements, including World Bank/IFC policies and guidelines. The company has provided technical assistance to cooperative dairy farms and smallholder farmers in Liaoning Province to improve their productive capabilities, and will build on this work to help third-party dairy suppliers strengthen their environmental, social and safety performance.
The company has a workforce of 2,400 persons at its processing plant and farms in Liaoning. The company’s human resource policy and practice in aspects such as minimum wage, minimum worker age, and overtime payment conform to Chinese labor laws and regulations. The company has a strong track record in occupational health and safety and is committed to maintaining a high level of performance in this area. It will take steps to strengthen its employee grievance mechanisms.
Shenyang Dairy produces significant quantities of animal wastes and waste water at its farms and processing plant, and about 140,000 tons of CO2 emissions from its operations. The company has committed to establishing a comprehensive waste management and monitoring system to ensure compliance with WBG/IFC EHS guideline requirements. It has undertaken a number of energy and water efficiency initiatives in the past, and is committed to energy and water audits to identify further efficiency opportunities. It is committed to annual tracking and reporting of CO2 emissions to IFC. |
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| For inquiries about the project, contact: |
Mr. Ernest Sin
Huishan Dairy Holding Ltd.
Telephone: +86(24) 88080078
Address: 99 Huishan Street, Agriculture High-Tech Development Zone
Shenyang, Liaoning, China 110164 |
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| For inquiries and comments about IFC, contact: |
General IFC Inquiries
IFC Corporate Relations
2121 Pennsylvania Avenue, NW
Washington DC 20433
Telephone: 202-473-3800
Fax: 202-974-4384
E Mail: Webmaster |
| Local access of project documentation |
Huishan Dairy Holding Ltd.
99 Huishan Street, Agriculture High-Tech Development Zone
Shenyang, Liaoning, China 110164 |
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