Dairy giant Fonterra is unwinding its Australian dairy joint venture with troubled Chinese infant formula group Beingmate, which is selling its 51 per cent stake in a Victorian milk powder factory.
Fonterra will announce details of an ownership shake-up for the Darnum joint venture this week, leaving a question mark over future control of its factory in Gippsland, Victoria, that employs 120 people.
However, it is believed Fonterra has not yet decided whether to sell its 18.8 per cent equity stake in Beingmate, a listed Chinese dairy giant that has lost more than two-thirds of its market value in the past three years and is now seeking financial support from the Chinese government.
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The unwinding of the Darnum partnership will further fuel speculation that Fonterra will cut ties with its Chinese partner completely.
The New Zealand dairy giant launched a review of its assets after writing down the value of its investment in China's Beingmate this year, driving the company into a loss.
Beingmate told the Shenzhen Stock Exchange this week it was terminating its agreement with Fonterra Australia and would sell its 51 per cent stake in the Darnum factory to Fonterra or a "designated party".
Beingmate also said it would sign a new agreement to purchase products from the Darnum factory after it exited the joint venture.
Fonterra on Tuesday confirmed it was unwinding the joint venture but would not provide details until its first-quarter results were released on Thursday.
Fonterra owns 49 per cent and manages the factory's operations.
The company says the plant, which makes nutritional and milk powders, indirectly employs 573 people in the region.
"Fonterra and Beingmate have reached a provisional agreement on the key terms to unwind the Darnum joint venture," a Fonterra spokesperson said.
'Unhappy' partnership Beingmate's stock traded at 5.35 yuan a share on the Shenzhen Stock Exchange on Tuesday.
Fonterra paid 18 yuan a share as part of a $NZ750 million ($707 million)-plus investment in 2015.
Beingmate said last week it was seeking support from a Chinese state-owned investment firm called Great Wall Guorong Investment, prompting speculation Fonterra was preparing to exit what analysts say has been an unhappy partnership.
The Chinese firm Beingmate has been threatened with delisting in China if it loses money again this year after two consecutive years of losses.
It has also been accused of violating information disclosure rules.
Fonterra said in March that it was disappointed with the performance of Beingmate after revealing a $NZ405 million impairment on the investment in its half-year results.
Relations between China and New Zealand soured last month after Wellington said equipment made by telecoms giant Huawei could not be used in upgrades to the country's 5G telecommunications network.
Fonterra has a distribution agreement with Beingmate to sell its Anmum brand into China.
It formed the partnership with Beingmate in 2015 to tap into China's growing demand for infant formula by using Fonterra's milk pools and manufacturing sites in New Zealand and Australia.
However, a shake-up of the way China regulates its dairy industry and a lack of trust in local brands has made life difficult for companies like Beingmate.