Huishan Dairy set for provisional liquidation

Cow farmhouses of Huishan Dairy in Shenyang, Liaoning province, China. Huishan's shares have been suspended since they tumbled 85 per cent on March 24.
Cow farmhouses of Huishan Dairy in Shenyang, Liaoning province, China. Huishan's shares have been suspended since they tumbled 85 per cent on March 24.PHOTO: REUTERS

SHANGHAI • China Huishan Dairy Holdings, the Hong Kong-listed firm targeted by short sellers, including Muddy Waters Capital, is preparing for provisional liquidation in a move that could protect its assets as it negotiates with creditors.

The firm had told its Cayman legal advisers to make the preparations, it said in a Hong Kong stock exchange filing on Thursday. Huishan's board earlier found that the net liabilities of its units in China "could have been" 10.5 billion yuan (S$2.2 billion) as of March 31, the company said. A provisional liquidation generally is used to safeguard a company's assets before a court rules what action to take.

Huishan's shares have been suspended since they tumbled 85 per cent on March 24, the day after its creditors held an emergency meeting to discuss a cash shortage at the company.

Huishan "will take into account, as far as possible, options available to the company to preserve the assets of the group", it said in the exchange filing.

With the majority of its assets held through units in China, any debt restructuring will be subject to Chinese law, Huishan Dairy said.

Huishan peaked at a market value of about US$5.9 billion in November 2013.

Muddy Waters alleged in December last year that the company had overstated its sales, misrepresented its self-sufficiency in alfalfa and made an unannounced transfer of assets to an entity controlled by its chairman Yang Kai.

Huishan said the allegations were groundless and contained misrepresentations. Muddy Waters founder Carson Block, in an interview yesterday, said his firm has exited its position on Huishan.

China's dairy industry, which imports about a fifth of its milk supply, is recovering from a worldwide raw milk price slump that has weighed on the profits of producers.

But Huishan's troubles are largely due to its own capital entanglements and not to wider market trends, said Guangdong Dairy Association director Wang Dingmian.

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A version of this article appeared in the print edition of The Straits Times on November 18, 2017, with the headline 'Huishan Dairy set for provisional liquidation'. Print Edition | Subscribe