By The offering, the second biggest in Hong Kong so far in 2013, was covered "multiple times" with demand from hedge funds, sovereign wealth funds and other asset managers, sources with direct knowledge of the deal said.
It was priced at HK$2.67 per share, the top of a marketing range of HK$2.28-$2.67, a separate source said.
In a sector bedevilled by food safety scandals, investors are drawn to Huishan's position as China's largest integrated dairy firm with control over grass planting, dairy processing and product development - giving it more oversight on quality.
Demand from retail investors was good given the large size of the offering, boding well for the stock's debut on September 27, said Jasper Chan, corporate finance officer at Phillip Securities, which offers margin loans for small investors looking to buy into the deals.
"The price will go up because this company is the only company in China that does the whole stuff for the milk industry," Chan added.
"Normally people are concerned about the safety of the product, but this one they do the whole thing and eases those concerns."
Sales of dairy products in China are worth some $45 billion a year and expected to grow rapidly through 2017 to about $89 billion, according to a Frost & Sullivan report prepared for Huishan.
The country's current per capita dairy consumption rate of is also less than half of its Asian neighbours, according to Macquarie.
But the industry is also highly fragmented. Although Huishan owns the country's second largest herd of dairy cows and fields of alfalfa for hay that are as large as Hong Kong island, it represents only a fraction of China's total market.
The top five dairy farming companies in the country, for example, account for just 2.4 percent of the 18.3 million cows in China, the Frost & Sullivan report said.
UNDER PRESSURE
However, government pressure for the industry to consolidate is set to change all that.
For example, China wants the number of domestic infant formula manufacturers to fall over the next five years to 50 from about 200 now.
To that end, it is set to issue a formal proposal to prompt consolidation among domestic infant formula firms, a state-run newspaper reported last month, naming Inner Mongolia Yili Industrial Group (>> Inner Mongolia Yili Industrial Group Co.) as one of the likely beneficiaries.
By 2018, China expects the top 10 local companies to account for 80 percent of the domestic market, with the largest three to five firms targeting annual sales of over 5 billion yuan ($817 million), the report said.
"This series of measures should accelerate industry consolidation, in which more than one-third of the small players in the market are expected to be eliminated from the milk formula industry," Sun Yiping, CEO of China Mengniu Dairy Co (>> China Mengniu Dairy Company Limited), said in an earnings statement on August 28.
Mengniu has been one of the most active dealmakers among China dairy firms this year, buying a $410 million stake in China Modern Dairy Holdings Ltd (>> China Modern Dairy Holdings Ltd) in May and inking a $1.6 billion deal in June to take over Yashili International Holdings Ltd (>> Yashili International Holdings Ltd).
It has also said it will form a yoghurt joint venture with France's Danone (>> DANONE), the world's largest yoghurt maker.
Compared to foreign firms, Chinese dairy producers have suffered from a series of food safety scandals, although a recent contamination scare from New Zealand dairy giant Fonterra
Huishan, which has yet to do any major M&A, offered 3.79 billion shares in the IPO, equivalent to about 26 percent of its outstanding stock. Current investors include Hong Kong billionaire Cheng Yu Tung, whose family controls the Chow Tai Fook (>> Chow Tai Fook Jewellery Group Ltd) jewellery empire.
The company plans to use about 34 percent of the IPO proceeds to build 45 new dairy farms over the next three years to boost production. Another 17 percent of funds will go towards importing 75,000 heifers from Australia or New Zealand over the same period, while 11 percent will be used to build a milk powder plant with output capacity of 33,000 tonnes a year.
Huishan Dairy hired Deutsche Bank (>> Deutsche Bank AG), Goldman Sachs (>> Goldman Sachs Group Inc), HSBC (>> HSBC Holdings plc) and UBS (>> UBS AG) as sponsors and joint global coordinators of the IPO. CIMB, Investec Capital Asia and Jefferies also acted as joint bookrunners.
The banks stand to earn as much as $39 million from the IPO, equivalent to 3 percent of the proceeds, in commissions and incentive fees.
(Editing by Edwina Gibbs)
By Elzio Barreto and Donny Kwok
