Share prices of Sanyuan Group soared on Monday after the Beijing-based dairy producer said it was raising funds to bid for the assets of bankrupt dairy products maker Sanlu.

Analysts said the asset buy through a non-public share sale would help Sanyuan become a national brand. But there still exists uncertainties for its further growth.

Sanyuan shares soared to their 10-percent daily limit on Monday to 6.15 yuan. The company's shares had been suspended since September 26, 2008, following reports that it was planning to buy scandal-hit Sanlu.

In a statement on Saturday, Sanyuan said it would raise funds ranging from 800 million yuan (US$117 million) to 1 billion yuan by selling shares to Sanyuan Group, the parent company, and Hebei Sanyuan, its subsidiary, at 4 yuan per share.

The money raised would be used to purchase Sanlu assets being auctioned by the Intermediate People's Court of Shijiazhuang on March 4.

Sanlu stopped production on September 12, 2008. Its melamine-tainted baby milk powder was found to have caused the deaths of at least six children and sickened more than 300,000 other children.

Last month, it was fined 49.37 million yuan by the Shijiazhuang court, which also imposed a life sentence for Sanlu chairwoman Tian Wenhua.

Analysts said Sanyuan may have difficulties in absorbing Sanlu's assets.

"The problem ahead for Sanyuan is how it can manage a company which is 10 times its size," said Huang Wei, a food and beverage analyst, China Jianyin Investment Securities.

In 2007, Sanyuan posted sales of over 1.1 billion yuan, while Sanlu had sales of around 10.3 billion yuan.

Sanyuan has been a well-known brand in Beijing and neighboring regions. It mainly produces liquid milk. The deal, when finalized, would enlarge its sales network and enhance its milk powder making capabilities.

The milk powder sector has become highly competitive after the entry of international brands and the middle and lower end of the market are dominated by domestic players. "There are few opportunities for Sanyuan to cash in on," Huang said.

(China Daily February 17, 2009)