China Huishan Dairy says executive can't be reached, payments missed

Yang Kai, chairman and CEO of China Huishan Dairy, takes part in a ceremony during the debut of the company at the Hong Kong Exchanges on Sept 27, 2013.
Yang Kai, chairman and CEO of China Huishan Dairy, takes part in a ceremony during the debut of the company at the Hong Kong Exchanges on Sept 27, 2013.PHOTO: REUTERS

HONG KONG (BLOOMBERG) - China Huishan Dairy Holdings Co said on Tuesday (March 28) it has been unable to contact one of its executive directors for the past week, in the company's first detailed statement since suspending its shares from trading on Friday after a sudden per cent plunge.

Ge Kun, who manages the company's treasury and cash operations, has taken a leave of absence and doesn't want to be contacted, according to a company statement to Hong Kong's stock exchange. The China-based milk producer said it had been late on some bank payments and creditors held a meeting last Thursday. The company also said it reached out to the Liaoning provincial government, which proposed an action plan.

Investors are looking for answers after a rout in Huishan shares erased US$4.1 billion (S$5.71 billion) of market value in less than 90 minutes on Friday and heightened concerns over unexplained swings in Hong Kong stocks. The selloff came about three months after Carson Block, the short seller and founder of Muddy Waters, issued a report on Huishan alleging the company was worth "close to zero."

Huishan said it categorically denies approving the issue of any forged invoices by members of the company and "doesn't believe" there has been any misappropriation. Chairman Yang Kai has also denied misappropriating 3 billion yuan (S$608.2million) to invest in real estate, the company said.

Almost 71 per cent of Huishan is owned by Champ Harvest, a company that's controlled by Yang, according to the statement, which showed that most of those 9.5 billion shares are being used as collateral.

Some 3.4 billion shares had been pledged to Ping An Bank, which said in an exchange filing that Champ Harvest had HK$2.1 billion (S$376.8 million) in outstanding loans as of March 24. Another 1.9 billion shares were being used to secure other Champ Harvest loans; some 750 million were backing loans to different companies controlled by Yang; and about 3.3 billion were deposited in brokerage accounts to secure margin financing, according to the Huishan statement. While Yang is still checking with his brokers, it doesn't look like Ping An spurred Friday's selloff by dumping shares, Huishan said.

Champ Harvest sold about a combined 68 million shares in Huishan on March 16 and March 17 to fund an acquisition, it said.

Huishan said its shares will remain halted while the company assesses its financial position.