China Modern Dairy Holdings Ltd.

The stable outlook on CMD reflects the outlook on Mengniu and our expectation that CMD will remain a highly strategic subsidiary of Mengniu over the next two years. The rating and outlook will hence move in tandem with those on Mengniu. We will lower the rating on CMD if we downgrade Mengniu. We could also lower the rating if we detect signs of CMD's reduced importance to its parent, such as a decrease in Mengniu's interest in CMD to 40% or below, or reduced share of raw milk supply to Mengniu. We will raise the rating on CMD if we upgrade Mengniu. We could also raise the rating if we believe CMD's relationship with its parent will be even more

...We believe China Modern Dairy Holdings Ltd. (CMD) will receive strong support from its parent, China Mengniu Dairy Co. Ltd. (Mengniu), under almost all foreseeable circumstances. This is based on our expectation that Mengniu will maintain control of CMD (currently 51% owned) and CMD will remain the largest raw milk supplier to Mengniu, owing to its integral role in the latter's business and growth strategy. CMD is highly integrated with Mengniu in terms of farm locations, daily operations, and future development. Its five-year growth plan shadows Mengniu's growth ambitions. We anticipate Mengniu will extend timely support to CMD when needed because Mengniu cannot replace CMD's supply without jeopardizing its own business, given CMD's size and product quality. During the last downturn in 2017, Mengniu provided extraordinary support to CMD in the form of a liquidity boost and shareholding increase....

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