Banking & Finance

Dairy operator China Huishan says it will continue with its creative fund raising approach

Financial innovation, such as its April deal which raised 1 billion yuan by selling part of its dairy herd, shouldn’t be ruled out, China Huishan Executive Vice President Ge Kun told investors

PUBLISHED : Thursday, 30 June, 2016, 9:34pm
UPDATED : Thursday, 30 June, 2016, 10:53pm

China Huishan, which owns the biggest number of dairy farms in China, said it might continue to adopt an “innovative” borrowing approach in the future after successfully raising 1 billion yuan (HK$1.2 billion) through pledging 50,000 of its cows for loans.

In April, the northeastern Chinese dairy giant listed in Hong Kong collateralised one quarter of its herd for loansat an annualised interest rate of 6.2 per cent, compared with funding costs of between 2.31 to 8.88 per cent for its existing long-term bank loans.

Turning its biological assets, 50,000 cows, into collateral, Huishan’s executive vice president Ge Kun said could keep the dairy farm’s balance sheet in a better shape and cut its borrowing costs.

“We are among the first to do it in China.... and where appropriate, we may also consider adopting similar innovative financing tools in the future,” Ge Kun said Thursday in a press briefing.

The dairy company stunned investors in late April after announcing that it agreed to sell about 25 per cent of its cows to a Guangdong lender for one billion yuan and then lease them back.

According to a regulatory filing to the Hong Kong stock exchange, Huishan was obliged to pay Guangdong Yuexin, a financial services firm, an annualised interest rate of 6.2 per cent with the finance lease term expiring in five years.

For the year ended March 31, Huishan’s bank loans totalled to 6.95 billion yuan, while its interest expenses climbed nearly 20 per cent to about 500 million yuan from a year earlier, the regulatory filing showed.

Meanwhile, a foreign exchange loss of as much as 192 million yuan, due to yuan depreciation, dragged the company’s annual net profits down by 8.3 per cent year on year to 824.6 million yuan.

“We plan on repaying our loans as early as possible, as well as adopting more hedging tools against exchange rate risks,” Eddie So Wing-hoi, Huishan’s Chief Financial Officer said.

Faced with a tough fundraising environment, many Chinese companies count on innovative asset-backed loans to raise capital, but it is rare for a major dairy company to pledge living animals for financing.

Meanwhile, Huishan’s Ge said three fourths of China’s dairy brands could disappear after Beijing recently issued what critics described as the “most stringent” dairy industry regulations.

Chinese dairy firms have over recent years undergone a shakeup amid dwindling raw milk prices and intensifying competition from their foreign rivals.