Dutch dairy giant buys remaining stake in joint venture with embattled China Huishan

Friesland Campina said it had bought the remaining 50 per cent of China Huishan Dairy Investments (Hong Kong) for around US$2 million

Friesland Campina, the dairy giant behind the popular Dutch Lady brand sold in China, said it had acquired the remaining stake in its joint venture with Huishan, officially ending its partnership with the embattled Chinese dairy company.


The Dutch firm bought a 1.1 per cent stake in China Huishan Dairy Holdings in 2015, when the latter was in its prime. Huishan at that time was one of the biggest taxpayers in the rust belt province of Liaoning, employing more than 40,000 workers.

The acquisition marked the establishment of the Friesland Huishan Dairy joint venture, which oversees the production and marketing of Dutch Lady, which was launched in China in 2016 and sold to central and eastern provinces including Hunan and Sichuan.

Sales of Dutch Lady products were “beyond expectations”, and Friesland Campina’s business in China achieved “double-digit” growth, according to then chief executive officer Roelof Joosten.


But things went sour quickly when the short-seller Muddy Waters raised concerns about Huishan’s “inflated earnings” in a report published in December 2016, in which it said that the company was worth “close to zero”.

Three months later, on March 24, 2017, Huishan’s shares plunged 85 per cent in just 90 minutes, before trading was suspended.

In November Huishan instructed lawyers to prepare for its provisional liquidation after estimating its debt at as much as 10.5 billion yuan (US$1.58 billion) as of March 2017, leaving many of the company’s business partners and lenders vulnerable, including big names such as HSBC and Bank of China.

“China Huishan Dairy’s financial problems negatively affected the development of the joint venture,” said Friesland Campina in its financial report for 2017. “Due to the loss of our partner, the utilisation of the joint venture’s plant declined, and the rollout of the business plan was delayed.”

This had resulted in the “impairment of property, plant and equipment of 36 million euros”, or US$44.0 million, said the company.

Friesland Campina said it had bought the remaining 50 per cent of China Huishan Dairy Investments (Hong Kong), through which the firm controls Friesland Huishan Dairy, for around US$2 million in mid-February, and now has 100 per cent ownership of the joint venture.

“The JV has always been mainly led by Friesland, while Huishan only provided domestic resources,” said Shen Meng, executive director with investment bank Chanson & Co.

“China now is going through many profound changes. Foreign firms can no longer follow the old path of collaborating with Chinese companies, they have to find a new way.”

Jian Li, an independent dairy analyst based in New Zealand, pointed to a lack of proper due diligence done by foreign firms on their potential Chinese partners.

“Foreign dairy companies need to set up more sensible joint ventures in China right from the beginning and avoid expensive dramas in the first place,” she said.