China Huishan Dairy Holding said a Shanghai court has frozen assets of the company and its chairman as requested by a mainland wealth management firm, and that HSBC alleges it has defaulted on a US$200 million loan. Huishan, the country’s largest dairy farm operator, said in a filing to the Hong Kong stock exchange late Monday that it had received a letter on Friday from HSBC alleging “non-compliance with certain of the covenants” and “has therefore called events of default under the Facility Agreement”. HSBC acted on behalf of six creditor banks including China CITIC Bank International. “The company is taking legal advice,” Huishan said in the filing. The dairy farm operator is facing a major challenge from creditors, which range from peer-to-peer lending platforms, wealth management firms to 23 banks, amid an unfolding debt crisis that has erupted following a mysterious collapse in its stock price and the disappearance of its treasury chief. Huishan also said that a Shanghai court ordered last week that cash or equivalent assets worth 546.1 million yuan (US$79 million) be frozen, after an application was filesd by Gopher Asset Management. The asset freeze applies to the dairy, its chairman Yang Kai, and his wife. China Huishan Dairy shares plunge as much as 91 per cent The company, based in Shenyang, in the northeast Liaoning province, requested that its shares be halted from trading in Hong Kong after they fell 85 per cent in morning trade on March 24. The shares, which tumbled from HK$2.80 to HK$0.42, wiped out US$4.1 billion in market value. The shares remain suspended in Hong Kong. Gopher is the first among Huishan’s scores of creditors to have resorted to legal action to preserve its interest. “Big banks may not be in a rush for now, but smaller creditors like Gopher would have bigger incentives to get their money back at any costs,” said Shen Meng, an executive director with boutique investment bank Chanson & Co. “Defaults by Huishan can result in tremendous losses for Gopher, and other asset managers and peer-to-peer lending platforms.” The dramatic sell-off in Huishan’s shares took place less than four months after short-seller Muddy Waters said the company was “worth close to zero” and a day after it was called into a meeting with anxious lenders in Shenyang. In the meeting, Yang, who collateralised 71 per cent of the company’s shares for loans, confirmed he had lost contact with Huishan’s treasury chief Ge Kun and admitted that the dairy giant was facing a “cash shortage” that could result in a default. Four Huishan directors quit after unexplained stock plunge, while finance chief remains missing Dragged into the Huishan financial woes are top Asian lenders such as Bank of China, ICBC, Bank of Communications and HSBC. Huishan has 1.38 billion yuan in loans due in 2018, according to Bloomberg data. In a post earnings briefing, ICBC revealed it had a 2 billion yuan credit line issued to Huishan, which, however, accounted for a marginal 5 per cent of the dairy’s debt. “A grave concern is that nobody knows exactly how much money Huishan has borrowed through a wide range of channels over the years, and how much cash it is able to set aside now,” Shen said. Local government called on banks to “give Huishan more time” and not to file related lawsuits, mainland media outlet Caixin reported. The dairy giant is one of the largest taxpayers in the northeastern rust belt province of Liaoning. It hires an estimated 40,000 workers in the region grappling with high unemployment. While creditors are taking steps in due course to safeguard its interest, Huishan is also struggling with a massive boardroom exodus. Last week alone, five of the 10 of its board members have resigned, while its finance chief Ge remains missing.