Hong Kong regulator bars trading in China Huishan Dairy shares in rare move

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Huishan saw nearly all its board members quit weeks after its stock price mysteriously plunged 85 per cent in the space of just 90 minutes. Photo: AP

Published: 6:45pm, 8 May 2017Updated: 10:46pm, 8 May 2017

In a rare move, Hong Kong’s securities watchdog ordered the suspension of trading in the shares of China Huishan Dairy Holding, amid signs that the troubled dairy operator’s financial woes are far from coming to an end.

The company, which saw all but two of its board members quit weeks after its stock price mysteriously plunged 85 per cent in the space of just 90 minutes, said on Monday morning Hong Kong Stock Exchange had halted trading based on instructions from the Securities and Futures Commission.

It is rare for the city’s securities regulator to invoke this power. There have been only six such directions issued by the SFC since 2011, and the repercussions can be severe. Hontex International Holdings, the trading of whose shares was suspended in 2010, ended up being delisted in 2013 after the SFC accused it of misleading investors in its listing prospectus.

Huishan called for a trading halt on the day of its unexplained stock crash, March 24, four months after short-seller Muddy Waters declared in a report that the company was worth “close to zero.” In the subsequent weeks, Huishan admitted it was in the depth of a cash crisis while facing a multibillion dollar debt burden and the disappearance of its head of finance.

The dairy giant is now left with only one acting director – its chairman Yang Kai – following a massive boardroom exodus, which means its board is now ineligible to act on behalf of the company under Hong Kong law.

According to Hong Kong’s listing rules, the SFC can request a trading suspension in a company’s shares in order to “address potential and actual market disorder and to protect the interests of investors.”