Intimate sources informed that Chinese private equity fund Hopu Investment Management and a state-owned firm, Cofco is expected to buy about 20 percent stake in China Mengniu Dairy Co. for an estimated amount of US$780 million.

A person on the condition of anonymity said Hopu, a $2.5 billion fund run by Goldman Sachs Group Inc.'s China partner Fang Fenglei, and its partner may form a consortium to buy about 20 percent of the milk producer.

Mengniu, China's biggest maker of liquid milk was one of the 22 dairy producers involved in last year's tainted milk scandal, in which six children were killed and 300,000 sickened.

Hopu is a fund founded by Fang Fenglei, chairman of Goldman Sachs'. On the other hand, Cofco, or China National Cereals, Oils & Foodstuffs Import & Export Corp., is one of China's better-regarded state enterprises. The firm is a key trader of grains in China.

Mengniu is expected to utilize the proceeds from the investment to boost production, improve quality and to fund potential acquisitions.

Earlier on July 3, the govt. of China said it would promote mergers in the dairy industry in as attempt to perk up product quality. This year, shares of Mengniu Surged more than 89 percent to close at HK$19.10 in the recent trading.