Chinese dairy products maker Taizinai, which counts Goldman Sachs and Morgan Stanley among its investors and Citigroup among its lenders, has collapsed, leaving around 3 billion yuan ($440 million) in unpaid debt, sources familiar with the matter said on Wednesday.

Morgan Stanley, Goldman and private equity firm Actis Capital had paid $73 million for a 31 percent stake in Cayman Islands-registered Taizinai in 2007, with Morgan Stanley providing $18 million, Goldman $15 million and Actis Capital $40 million, sources said.

The Grand Court of the Cayman Islands appointed Hong Kong accountant Borrelli Walsh as provisional liquidator of the former high flyer, the South China Morning Post reported on Wednesday, citing documents it had reviewed.

The paper was first to report the company's collapse.

Citigroup is Taizinai's biggest lender, while the company also owed money to Singapore's DBS and other banks, according to the sources.

Taizinai and Actis could not be reached for comment. The banks declined to comment. The sources have direct knowledge of the matter but are not authorized to speak publicly about the matter.

Once an IPO candidate, Taizinai, best known for its probiotic yoghurt drinks, expanded quickly, but was hit hard by China's tainted milk scandal, which hurt dairy sales across the country.

Hunan-based Taizinai did not sell any contaminated products, but was hit by the industry downturn, one of the sources said.

With the tainted milk scandal and the over-expansion of its business, Taizinai was struggling, prompting the Hunan provincial government to take over the company in December 2008, according to a source familiar with the matter.

The local government had been managing and trying to stabilize the company since then, but was unable to make any real progress finding a solution, or a buyer.

The source said the liquidators have taken over the company, and will continue to try and seek a buyer.

As recently as the middle of last year, Taizinai was cited in Chinese media as a takeover target for Nestle SA , the world's biggest food group. A Nestle spokesman in China declined to comment about the matter at that time.

(Additional reporting by Denny Thomas and Doug Young)

(Editing by Michael Flaherty and Muralikumar Anantharaman)

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