Huishan Dairy fallout spreads

BEIJING • The fallout from embattled China Huishan Dairy Holdings appeared to spread yesterday as shares in its second-largest creditor slumped by a record over concerns of its exposure to the dairy product manufacturer.

A mysterious collapse in Huishan Dairy's shares last Friday that erased about US$4 billion (S$5.6 billion) of its market value and prompted a trading halt has hurt other firms linked to it.

Yesterday, shares in Jilin Jiutai Rural Commercial Bank tumbled 11 per cent in Hong Kong, its biggest drop since it listed 21/2 months ago. It ended the day at HK$4.82.

Jiutai bank is Huishan Dairy's second-biggest creditor with 1.83 billion yuan (S$372 million) of loans, while Champ Harvest is the largest shareholder with 17.9 per cent of its Hong Kong-listed shares.

Investors are concerned about "how much exposure does Jiutai Bank have, and as Champ is a 15 per cent-plus holder of Jiutai Bank, what are the terms of the exposure", said Mr Andrew Clarke, director of trading at Mirabaud.

Jiutai Bank sees the drop in its shares as a "normal fluctuation", an external spokesman said.

One of the most striking things about the 85 per cent plunge in Huishan's stock last week was how little it surprised market observers in Hong Kong. The mysterious crash, the indefinite trading halt, the hours without a company statement were all too familiar to traders who have had to navigate at least three similar episodes in the past two years.

Hang Fat Ginseng Holdings, Hanergy Thin Film Power Group and Tech Pro Technology Development have all suffered crashes in the past two years.

While the city is upfront about its buyer-beware approach to regulation, the frequent sight of multibillion-dollar stocks collapsing in minutes has deterred investors and raised questions about Hong Kong's role as one of Asia's premier trading hubs.

Huishan's slump took less than 90 minutes and within two hours, trading was suspended. But, the day before the crash, Huishan's creditors had held an emergency meeting to discuss cash shortage, the firm's peer-to-peer lender Hongling Capital said yesterday.

Government officials convened the meeting and asked the lenders, including Jiutai Bank, to refrain from demanding immediate repayment, said Hongling, which brokered a 50 million yuan loan to Huishan in February.

Major creditors expressed confidence that Huishan would be able to repay overdue interest within four weeks, Hongling said.

Friday's selloff came more than three months after Mr Carson Block, the short seller and founder of Muddy Waters, issued a report on Huishan alleging the company was worth "close to zero".

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A version of this article appeared in the print edition of The Straits Times on March 28, 2017, with the headline 'Huishan Dairy fallout spreads'. Print Edition | Subscribe