Bellamy’s tipped to regain Chinese import licence

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One of the men who sold Camperdown Powder to Bellamy’s Australia expects Chinese authorities will quickly reinstate an import licence for the canning facility, which was suspended just days after Bellamy’s finalised its purchase of the business.

Queensland businessman and racehorse identity Graham Huddy, who is executive chairman and a secured creditor of Camperdown Dairy International (CDI), which sold the canner to Bellamy’s, said he expected the license to be reinstated right away.

“I’m at a loss at why someone would do this? You would think they would front the company first,” Mr Huddy told The Australian Financial Review.

“My opinion is this will be sorted out as I don’t think there is anything wrong. I think the permit will be reissued.”

Bellamy’s latest saga started July 6, when the Chinese government surprised the company by revoking the import licence for Camperdown Powder, forcing Bellamy’s to place its shares in a trading halt while it investigated the issue.

By Tuesday the company’s shares were suspended as it further responds to quality concerns that were presented to Chinese authorities by an as yet unidentified third party.

The sale of Camperdown Powder was only finalised in early July and days later CDI was placed into administration, according to documents filed with the corporate regulator. KordaMentha has been appointed administrator.

Mr Huddy said he did not know who would make such a claim against CDI, which was selling infant formula to China through Great Wall Capital Trading, a Hong Kong based wholesale import and distribution company.

However, two sources pointed to a Chinese customer alerting the Certification Accreditation Administration of the People’s Republic of China (CNCA), with concerns over its own position in China.

“Doing business in China is not like doing business in Australia,” one insider said. “There is a plethora of reasons why somebody would take issue with Camperdown.

“You have a transaction with Camperdown that Chinese authorities were unaware of, then right after you have that company put into administration. From a regulatory point of view they are asking questions.”

The source added that given the limitation on the number of firms that have “slots” to import formula to China, there would be angst by local customers.

“For Chinese domestic manufacturers of baby formula consumer confidence is low, while its quite high for international manufactures,” he said.

CDI was set up in 2014 and backed by Queensland mining magnate Bill McDonald who held an 80 per cent share, and agricultural investment firm EAT Group. Mr McDonald’s holding was transferred just 18 months later to Mr Huddy.

CDI co-founders Phil McFarlane, Brendon McKeegan and Gavin Evans, along with their backers, initially had big plans to build a dairy empire on the border of Victoria and South Australia. They also wanted to invest in King Island beef.

But by November 2016 Mr Evans cited setbacks caused by a global oversupply of infant formula product and uncertainty around Chinese import regulations for the change of plans.

Mr Evans planned on staying as CEO of Camperdown under Bellamy’s ownership.

Bellamy’s has until Saturday to respond to queries from the CNCA over “quality” issues and record-keeping complaints levelled at its Camperdown facility.

Bellamy’s has said it has a “strong case” and is continuing to invest in upgrades to the Camperdown facility.

But if Bellamy’s can not restore the CNCA licence it faces the prospect of having to pay a premium to secure another facility, with a wave of consolidation already underway as manufacturers adjust to new regulatory requirements to export infant formula to China.

Its options are slimming. Hong Kong’s Mason Financial Holdings last week bought a major stake in Blend and Pack, the canning facility Bellamy’s was running the ruler over before buying Camperdown.

Mason is connected to the founder of Chinese investment firm Genius Link Asset Management Group, Joel Chang.

Sources said CNCA had audited Camperdown in May.

Bellamy’s is continuing its discussions with the corporate regulator over whether it must provide an option for retail investors to pull out of its recent raising and hand back up to $45.5 million.

Under corporate law if there is a material adverse event that occurs before shares are issued, investors must be given the right to exit the transaction.

In its prospectus, Bellamy’s warned investors sudden regulatory change in China continued to present a business risk.

It also warned that any delay in obtaining China Food and Drug Administration (CFDA) for its products would have a material impact on its earnings.

Bellamy’s did not anticipate having CFDA registration before January 2018.

To gain CFDA registration, products must be manufactured in facilities that hold CNCA licences.

According to its prospectus, Camperdown gained its CNCA licence just a year ago. It was not due for renewal until July 2019.

by Carrie LaFrenz and Julie-anne Sprague
Financial Review

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