Huishan Had Emergency Creditor Meeting Before Rout, Lender Says

  • P2P lender Hongling provides account of Thursday meeting
  • Dairy producer’s shares plunged 85% in Hong Kong on Friday

China Huishan Dairy Loses $4.1B in Value

China Huishan Dairy Holdings Co.’s creditors held an emergency meeting on Thursday to discuss a cash shortage at the milk producer, according to a peer-to-peer lender that attended the gathering.

Government officials from Liaoning province, where Huishan is based, convened the meeting and asked the company’s lenders to refrain from demanding immediate repayment, according to Hongling Capital, a P2P platform that brokered a 50 million yuan ($7.3 million) loan to Huishan in February. The government officials, who stressed the need for social stability, also agreed to buy a plot of land from Huishan for 90 million yuan and instructed the company to sell equity to solve its liquidity problem, Hongling said in a statement.

The lender’s account may help shed light on a rout in Huishan shares that erased $4.1 billion of market value in less than 90 minutes on Friday and heightened concerns over unexplained swings in Hong Kong stocks. Huishan, which didn’t answer calls to its investor relations department on Monday, said in an exchange filing on Friday that it would comment further after completing an inquiry. Calls to the Liaoning government’s financial services office weren’t answered.

Hongling said it flew two executives to Shenyang, the capital of Liaoning province, to attend the meeting at the Friendship Hotel on Thursday, after Huishan paid 479,000 yuan of interest a half day after it was due on March 21. The one-year loan, arranged by the P2P lender with money from individual savers, carries an annual interest rate of 13.5 percent, Hongling said.

Major Huishan creditors at the meeting, including Bank of China Ltd. and Jilin Jiutai Rural Commercial Bank Corp., expressed confidence in the dairy maker and said the firm would be able to repay overdue interest within four weeks, according to Hongling. Bank of China said it couldn’t comment immediately when contacted by Bloomberg News.

Read more: A QuickTake explainer on China’s debt problems

Jilin Jiutai’s shares tumbled as much as 11 percent in Hong Kong on Monday. The lender considers the drop a “normal fluctuation,” an external spokeswoman for the lender said by phone from Hong Kong. “The share price is affected by various factors,” she said, adding that the bank had no further comment.

Hongling issued a statement on the creditor meeting via its WeChat account after the close of Hong Kong markets on Friday, and the company’s public relations officer confirmed its contents to Bloomberg News on Monday. The P2P lender, established in 2009, is one of the founding members of the Internet Finance Professional Committee set up by the Payment & Clearing Association of China, which is supervised by the nation’s central bank.

Huishan sank 85 percent during the morning trading session in Hong Kong on Friday before shares were halted.

The selloff came more than three months after Carson Block, the short seller and founder of Muddy Waters LLC, issued a report on Huishan alleging the company was worth “close to zero.” Block’s thesis was based on several allegations, including that Huishan had misrepresented its self-sufficiency in alfalfa (used to feed cows), overstated its revenue and made an unannounced transfer of assets to an entity controlled by Chairman Yang Kai. Block also said Huishan’s “excessive leverage” had put the company at risk of default.

Huishan has said that the allegations in Block’s December report were groundless and contained misrepresentations.

— With assistance by Judy Chen, Jun Luo, Rachel Chang, and Steven Yang

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