China’s Huishan Dairy reveals 2.5bn yuan ‘discrepancy’ amid possible debt restructuring
China’s largest dairy farm operator finds discrepancy in its cash position based on management accounts and bank records
China Huishan Dairy faces a bumpy road ahead in its effort to restructure its hefty debt, as a 2.5 billion yuan “discrepancy” in its cash position implies lingering obscurities over its financial well-being.
The Shenyang-based dairy farm operator said in a statement on Monday that it has found a discrepancy in its cash position based on “incomplete” management accounts and confirmation received from banks. It also said it was in talks with its creditors over a possible debt restructuring.
The update came amid heightening pressures from Huishan’s scores of creditors, including banking giant HSBC and asset manager Gopher Asset Management, on the company over its inability to meet bond payments since chairman Yang Kai suddenly informed of a cash crunch.
Huishan made global headlines in late March after its shares mysteriously plunged 85 per cent within 90 minutes, just days following the disappearance of the company’s finance chief and four months after US short-seller Muddy Waters declared the stock was worth close to zero.
“The company’s financial position is still mired in uncertainties,”said Shen Meng, executive director with Chanson & Co.. “The 2.5 billion yuan discrepancy fuels worries over where exactly the money has gone.”
China’s largest diary farm operator said based on “incomplete” management accounts, its holdings of cash and cash equivalents as of March 31, 2017 amounted to around 2.9 billion yuan (US$425.6 million). However, its banks confirmed that they had only received a total of 467 million yuan by May 31, most of which were bank deposits.
“The crisis is far from over, as neither banks nor interested strategic investors are able to have a clear picture of its financial position even with the latest update,” Shen said.
A massive boardroom exodus over the last two months left its chairman as the only acting director of China’s largest dairy farm operator, while in a rare move, Hong Kong’s securities watchdog ordered in May the suspension of trading in all the shares of the company.
“It is going to take a long time, probably 6-12 months, for the company to sort out its cheques and balances, and possibly see a resumption of trading,”Robin Yuen, a consumer analyst with RHB Securities, said. “There are a barrage of Hong Kong-listed firms whose shares have been suspended for years.”
Huishan said it was still trying to clarify the “significant discrepancy”.
Last week, Shenzhen Fuhai Yintao Asset Management was appointed by Yang as Huishan’s “debt restructuring advisor.” Wu Jiesi, who controls the money manager, is a politically well-connected businessman having been a former assistant governor of Guangdong province in 1998.
Wu made his name for having successfully restructured embattled Guangdong corporate giants such as homebuilder Kaisa Group Holdings and Guangdong Holdings.
“It might be interesting to see how the new restructuring advisor will help Huishan survive the storm,” Shen said.
In the latest statement, Huishan admitted it faced debt totalling 26.73 billion yuan, comprising bank and non-bank loans. The firm said it is still attempting to verify outstanding guarantees with third party entities and that it believes the total amount of the guarantees is around 3.94 billion yuan.