Fonterra will sell its China farms to a local company for half a billion dollars, as it continues to find ways to pay down debt.
Fonterra chief executive Miles Hurrell. Photo: RNZ / Dan Cook
The deal, which was finalised over the weekend, saw the dairy giant's two farming hubs in Ying and Yutian sold for $513 million, and in a separate deal it agreed to sell its 85 percent stake in a local farm for $42m.
Fonterra chief executive Miles Hurrell said establishing the farms in China was tough.
"It's fair to say it's been a tough journey for us along the way, we had to take an impairment to that asset in 2019 and again in 2020 so certainly they haven't been as operationally effective as we would have liked.
"That said, we have made significant progress of late and that's put us in a better position to sell these assets."
He said in retrospect the investment was a good move.
"It was always part of our plan to support the local dairy industry in China, that was certainly the intention going in... it wasn't the intention to lose money but the strategic intent still remains.
The proceeds would be used to pay down debt.
"We still have some work to do around our balance sheet so it's intended at this point to pay down debt and focus on that in the near term."
Hurrell said its yogurt business, a partnership with Nestle, located in Brazil would likely be next on the block.
"We're in discussions there around selling that asset. We've also announced a strategic review of our joint venture in China, but our key asset is Brazil and discussions are underway.
The farming hubs would be sold to Inner Mongolia Natural Dairy Co., a subsidiary of China Youran Dairy Group and the farm in Hangu would be sold to Beijing Sanyuan Venture Capital Co., which held the minority share.
Subject to regulatory approval the sales were expected to be completed by mid 2021.