China’s Huishan Dairy rolls out debt restructuring plan amid cash crunch
China’s debt-laden Huishan Dairy said its debt restructuring advisor has proposed grouping the businesses of the company and selected assets of its chairman Yang Ka and his own ventures together to form a new entity held by some of its creditors, shareholders and management.
It is the first time that China’s largest dairy farm operator has laid out plans to ease its debt nightmare as it struggles to meet payments to scores of creditors amid a drastic cash crunch. Its shares have been suspended from trading since March 24, the day it raised eyebrows among investors after slumping a record 86 per cent within just 90 minutes.
The embattled company has yet to find a white knight and no consensus has been reached among a sufficient number of its creditors regarding the new restructuring proposal, according to a company statement.
“The debt restructuring adviser has come to a view that a more realistic approach to debt restructuring would involve discussions with creditors of the Group and Yang Kai and other [YK Entities] at the same time,” Huishan said in a statement to the Hong Kong stock exchange on Monday.
The new entity was expected to be registered on the mainland, which many experts said could make foreign shareholders and creditors reluctant to give it the green light.
“The new proposal will bring the financial issues related to the company under the mainland’s legal system and that means a lot of uncertainties for foreign creditors and shareholders,” said Shen Meng, executive director with boutique investment bank Chanson & Co.
“There is a chance that a bankruptcy will be the end solution to this thorny issue.”
In late March, Yang, who was then the only acting executive director of Huishan, appointed Shenzhen Fuhai Yintao Asset Management as the company’s debt restructuring advisor. Fuhai Yintao is a money manager controlled by Wu Jiesi, a politically connected businessman who served as assistant governor of Guangdong province in the late 1990s.
Wu is renowned for his success in restructuring beleaguered Guangdong corporate giants such as homebuilder Kaisa Group Holdings and Guangdong Holdings.
The Shenyang-based Huishan indicated earlier last month that it found a 2.5 billion yuan (US$368 million) discrepancy in its cash position based on “incomplete” management accounts and confirmation received from banks.
Yang, who became Liaoning’s richest billionaire after the initial public offering of Huishan, has borrowed extensively to buy back shares in his dairy giant and also snapped up stakes in other Hong Kong-listed enterprises.
In a separate statement, Huishan admitted last month it faced debt totalling 26.73 billion yuan, comprising bank and non-bank loans. The firm said at the time it was 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.
Details of how much debt Yang and his other ventures are due to repay and how much would subsequently be channelled to the new proposed entity were not disclosed in the filing.
A massive boardroom exodus since March had left its chairman as the only acting director of Huishan. It was not until late June that the company managed to appoint three independent non-executive directors.