China Mengniu Dairy said on Monday that it will raise HK$3.058 billion ($394.6 million) from a share sale to China National Oils, Foodstuffs and Cereals Corp (COFCO) and Hopu Investment Management.

Hopu, a private equity fund, and COFCO, China's largest food importer and exporter, will own about 10.01 percent of China Mengniu's enlarged issued share capital upon completion of the share subscription, the company said.

It is the company's intention to use the proceeds from the share subscription to expand its existing operation, or to invest in or opportunities which may arise as a result of the upstream milk source consolidation and development in (the) dairy product industry, China Mengniu said in a statement to the stock exchange.

Through a special purpose vehicle, both COFCO and Hopu will subscribe for the shares at HK$17.60 a piece, which would be a 7.85 percent discount to China Mengniu's Friday closing price of HK$19.10 per share before the announcement.

COFCO will own a 70 percent stake in the special purpose vehicle, while Hopu will own the remaining 30 percent.

The share subscription marks the latest cash infusion for an industry recovering from a tainted milk scandal.

Sources told Reuters earlier that Hopu and COFCO were set to invest around $800 million for 20 percent of China Mengniu.

Mengniu was one of the Chinese dairies found to have sold milk containing melamine during last year's tainted milk scandal. It and other major dairies like Yili and Bright Dairy all saw major sales declines in the scandal's wake, leaving them needing cash to fund their sprawling operations.

Shares of the Chinese dairy plunged 67 percent in September last year after the scandal broke. They have come back since then, up more than 89 percent this year, but are still 20 percent below their pre-scandal levels.

($1=7.750 Hong Kong Dollar)

(Reporting by Sui-Lee Wee; Editing by Hans Peters)

China Sale