Mengniu Dairy to maintain growth despite Danone's divestment

    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 . 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.