[ET Net News Agency, 2 March 2021] S&P Global Ratings said today that Danone S.A.'s
potential divestment of its 9.8% stake in China Mengniu Dairy Co. Ltd. (02319)
(BBB+/Stable/--) may slightly affect the latter's innovation pace and breadth of expertise
at the board level, but the credit rating agency doesn't foresee material consequences on
Mengniu's competitiveness or financial policy.
S&P continues to expect revenue growth of 10%-15% and low leverage of 1.6x-1.8x for the
company in the next 12-24 months.
It believes Danone's potential divestment should not slow Mengniu from growing its
low-temperature dairy business or product innovation, given that Mengniu has been taking
the lead in their cooperation. Danone and Mengniu collaborate mainly in the
low-temperature yogurt segment through a 20-80 joint venture (JV). Danone also holds a 25%
stake in Yashili International Holdings Ltd. (01230), Mengniu's domestic powdered milk
brand.
S&P noted that it is unclear whether Danone's divestment of Mengniu will lead to changes
in collaboration at the subsidiary level. If that happens, Mengniu's access to new
techniques and shift to plant-based dairy products may slow or be at risk. But operational
consequences will be minimal because of Mengniu's control over the JV. Decelerated growth
in low-temperature products will also have limited effects on Mengniu, given the small
size of this business (the agency estimated at 10%-15% of revenue) and lower
profitability.
Losing Danone might lower the breadth of international expertise and vision in Mengniu's
board. S&P believes the presence of international investors like Danone and Arla Foods on
Mengniu's board enhances the company's risk management and quality control capabilities,
provides an international perspective, and helps maintain transparency and independence in
decision-making.
It thinks Arla will continue to bring those benefits to Mengniu but the latter's overall
management and governance will depend on the buyer of Danone's stake. (KL)