Through a special purpose vehicle, both COFCO and Hopu would 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.

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.

Mengniu shares plunged 67 percent in September last year after the scandal broke. They have come back since then, up about 89 percent this year, but are still 20 percent below their pre-scandal levels.

Shares were suspended yesterday pending the announcement.

Fund managers said the outside investment might be less designed to seize on low valuations, and is more of a bet on Mengniu's long-term prospects.

Mengniu said in June its sales were 20 percent lower than normal for the first five months of 2009, but that the negative impact of the scandal was basically over and its products were 100 percent safe to consume.

The cash infusion for Mengniu would mark the second major investment in a Chinese dairy company by a private equity firm within the last month.

Last month, Kohlberg Kravis Roberts Co said it had completed a series of investments in Ma'anshan Modern Farming Co Ltd, a leading dairy farm company headquartered in Anhui province.

Reuters