Huishan Dairy shares sink 91% in Hong Kong

Chairman of Muddy Waters' short target denies claims of $610m misappropriation

BEIJING • Mr Carson Block, the renowned short-seller and founder of Muddy Waters, has watched plenty of stocks crater after one of his bearish research reports. But he has never seen anything quite like China Huishan Dairy Holdings.

When Mr Block said the company was worth "close to zero" in mid-December, Huishan shares barely budged. They dipped 2.1 per cent on the day of his report, recovered within a week and have flatlined ever since.

That is until yesterday, when they suddenly plunged as much as 91 per cent in Hong Kong - for reasons even Mr Block has yet to pin down.

The shares fell to as low as 25 Hong Kong cents before edging back up to 42 Hong Kong cents when the trade was halted. The sudden crash wiped out about US$4.1 billion (S$5.7 billion) in market value. A record 779 million shares in the Shenyang-based company changed hands, the most on Hong Kong's exchange.

Chairman Yang Kai said online speculation that its largest shareholder misappropriated 3 billion yuan (S$610 million) to invest in Shenyang real estate is untrue, Netease reported, citing a phone interview.

The mysterious tumble will increase concerns about the risks that can befall investors in Hong Kong, after the 47 per cent plunge of Hanergy Thin Film Power Group in 2015. The move is also a vindication for Mr Block, whose Muddy Waters said in December it was shorting Huishan Dairy.

Muddy Waters alleged in December that Huishan had been overstating its spending on its cow farms by as much as 1.6 billion yuan to "support the company's income statement".

The report also alleged that the company made an unannounced transfer of a subsidiary that owned at least four cow farms to an undisclosed related party and Muddy Waters concluded that chairman Yang controls the subsidiary and farms.

Huishan said then that the report's claims were groundless and contained misrepresentations.

Mr Ben Kwong, executive director of KGI Asia in Hong Kong, said: "This kind of volatility in individual stocks will alert investors to the potential risk of investing in private Chinese companies."

Liaoning's government held a meeting on Thursday afternoon with 23 creditor banks to discuss Huishan Dairy's debt, Caixin reported, citing unidentified people.

A Huishan Dairy spokesman declined to comment, saying the company will issue a statement.

Hong Kong's stock market is well regulated and is not becoming a stock "casino", Hong Kong Exchanges and Clearing chief executive Charles Li said in response to the plunge.


A version of this article appeared in the print edition of The Straits Times on March 25, 2017, with the headline 'Huishan Dairy shares sink 91% in Hong Kong'. Subscribe