Synlait owner's outlook brightens on Fonterra stumble

China’s Bright Dairy looking better after Fonterra’s food safety stumble, Moody’s says

By Paul McBeth

Aug 13 (BusinessDesk) - China’s Bright Food Group, a cornerstone stake in local processor Synlait Milk, is likely to get a boost from Fonterra Cooperative Group’s food scare and might get a credit rating upgrade from Moody’s Investors Service.

Fonterra is the biggest milk powder supplier into China with about 60 percent market share, and last week's food safety scare is seen as credit positive for Bright Food’s Baa3 credit rating with a stable outlook, Moody’s said in a statement. The New Zealand dairy exporter discovered bacteria that can cause botulism, which sparked a recall of potentially tainted food and prompted Chinese authorities to suspend imports of affected products.

“The incident is credit positive of Bright Food, which operates its dairy business through Bright Dairy & Food Co, a 65 percent Shanghai listed company and is one of China’s top three dairy producers by revenue,” Moody’s senior analyst Alan Gao said.

Moody’s expects Fonterra’s operations will be disrupted and its brand image tainted, and that will “likely drive consumers from those brands in trouble to leading domestic brands,” the rating agency said.

Last week, Synlait Milk, which listed on the New Zealand stock exchange last month, said it didn’t use any of the affected Fonterra product. While it expected to face some disruption to trade and additional testing in the short-term, it downplayed any long-term impact on its growth aspirations.

Its share price has crept up 0.7 percent to $2.73 since the incident became public.

The threat to New Zealand’s reputation with Chinese consumers has put the government into over-drive to head off the risk, and it’s fast-tracking legislation to allow a speedy inquiry so Prime Minister John Key can front up in China to allay those concerns.

The government investigation is one of four, with Fonterra holding two probes and the Ministry for Primary Industries also holding an inquiry.

The contamination was confined to 38 metric tonnes of whey protein concentrate (WPC80) manufactured at Fonterra’s Hautapu plant near Cambridge and first picked up at a plant in Australia. It was used in the manufacture of infant formula, juice and dairy beverages, yoghurt, body building powder, and animal stock food.

(BusinessDesk)

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