China’s new billionaire: how he made his fortune on baby formula

A leading Chinese baby food producer decided to trade its shares in Hong Kong instead of America. The listing was successful and the company’s main owner became a billionaire

China Feihe, one of China’s largest producers of milk powder, is the latest in a string of national companies to decide to trade its shares in its home country rather than in America. Another entrepreneur has joined the ranks of Chinese billionaires as a result of listing in Hong Kong.

American Dairy, the main current asset of China Feihe, listed its securities on the New York Stock Exchange in 2008. Despite the name, the producer had virtually no operations in the U.S. In 2013, the company went private after merging with China Feihe. On November 13, the reorganized China Feihe listed on the Hong Kong Stock Exchange.

For China Feihe Chairman and CEO Lan Yubin, the Hong Kong listing paid off. At the close of trading on Dec. 9, the company’s shares were worth HK$7.54 each. China Feihe’s market capitalization in U.S. currency reached $8.6 billion, and Lan’s stake in the business was valued at $3.8 billion.

Len Yubin is following the lead of Chinese billionaire founders Focus Media, Qihoo 360, Shenzhen Mindray and Giant Interactive, who in recent years have chosen to list their companies in China rather than in the United States. China Feihe’s listing came just before Chinese giant Alibaba, which raised a record $25 billion in its 2014 IPO in New York, arranged a secondary offering in Hong Kong and sold $13 billion worth of shares, underscoring the appeal of the offering in a market close to domestic consumers and investors.

China Feihe’s listing in Hong Kong was not without its difficulties. November 22, trading in the company’s shares on the Hong Kong Stock Exchange was suspended after the price of securities fell to 6.26 Hong Kong dollars amid doubts about the reliability of the company’s financial statements. China Feihe called the allegations unfounded and false. On November 25, trading resumed and the share price returned to its previous level.

This year’s offering in the U.S. is yielding conflicting results for Chinese companies and investors. Luckin Coffee, a Chinese competitor to Starbucks, and education services provider GSX did well, but shares of media company 36Kr plummeted in opening trading. Technology and education companies from China are still interested in listing in the U.S., says Kevin Wang, founder of Shanghai-based financial services firm Envision Capital.

China Feihe sold 893 million shares in its IPO and raised about HK$6.7 billion. The company is using about 40 percent of the funds to pay off overseas debt and 20 percent for potential mergers and acquisitions, the prospectus said. Now the company, looking to expand overseas, is building a factory in Canada.

Lan is 50 years old. He graduated by correspondence from Northeast Agricultural University in Heilongjiang Province in 1995 and earned EMBA degrees from the Peking University School of Economics in 2002 and the Guanghua School of Management at Peking University in 2007.

In 2018, China Feihe had revenue of 10.4 billion yuan, or $1.5 billion, and net income of 2.2 billion yuan, or $317 million. According to research firm Forrest & Sullivan, China Feihe ranks first among Chinese baby formula manufacturers by retail sales with a 15.6 percent market share. China Feihe sells its products to 1,228 distributors and 668 retail stores. According to the company’s prospectus, as of June 30, there were more than 109,000 points of sale for the company’s products in China. China Feihe has been in existence for nearly 60 years. The company’s predecessor, the Hongguang Dairy Plant, was launched as a state-owned enterprise in 1962. The China Feihe brand was officially registered in 1984.

China’s food industry has been a notable source of wealth for members of Forbes’ list of China’s richest people, published in November. The country has the most billionaires since the U.S.: their number is likely to continue growing, thanks to positive economic growth forecasts and rising consumer spending.

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