SINGAPORE (Apr 15): Agri-food company Japfa has agreed to sell a 25% stake in wholly-owned subsidiary AustAsia Investment Holdings to Japanese dairy giant Meiji for US$254.4 million ($359.9 million).

Following the completion of the transaction, Japfa will own a 75% stake in AustAsia, which operates the group’s dairy farming business in China.

The group says the move is expected to strengthen its position as a raw milk producer in the growing Chinese dairy industry.

It will also open doors for Meiji’s expansion plans in the Middle Kingdom.

“We have been supplying raw milk to Meiji for many years and we are pleased that they have approached us to support their growth plans in China and reinforce our strategic relationship,” says Japfa CEO Tan Yong Nang.

“This strategic and synergistic partnership will secure the supply of quality raw milk for Meiji’s downstream operations and provide a stable revenue stream for Japfa, enabling us to build AustAsia to become the largest independent raw milk producer in China,” he adds.

Japfa intends to use the proceeds from the sale of the stake for the repayment of its US$253 million term loan.

Amid the uncertainty of the Covid-19 outbreak, this is seen as a move to improve the group’s consolidated leverage ratio and strengthen its balance sheet to weather the storm ahead.

So far, however, Japfa says its day-to-day operations have not been materially impacted by the outbreak.

Credit Suisse (Singapore) is the exclusive financial advisor to Japfa for this transaction.

Japfa had requested for a trading halt before market open on Wednesday. Shares in the counter last closed at 51 cents.