China Huishan Dairy Holdings is battling allegations of financial irregularities, including claims made last year by short selling firm Muddy Waters Research that the company inflated profits — claims Huishan denied. Hong Kong-listed Huishan’s shares have been suspended since their price collapsed on March 24, erasing $US4.1 billion in market value.
Huishan said on Friday in a regulatory filing to the Hong Kong stock exchange that its second-to-last remaining board member, Ge Kun, was removed after she became unreachable for more than two months.
Together with chairman Yang Kai, Ms Ge owns more than 70 per cent of Huishan’s shares through a private company, according to filings. Mr Yang, who founded Huishan and owns 90 per cent of the private company, has pledged virtually all of these shares to creditors, according to filings.
Efforts to contact Huishan’s investor-relations offices in Shenyang and Hong Kong on Monday were unsuccessful.
Huishan’s recent troubles have echoes of events at another Hong Kong-listed Chinese firm, solar-equipment maker Hanergy Thin Film Power Group. Both companies rode a wave of government support for their industries, landed in the crosshairs of short sellers, had their founders pledge shares to creditors, endured a major collapse in share price followed by a trading suspension and the departure of board members. Hanergy’s shares have remained suspended for more than two years; its chairman has stepped down.
The company has denied corporate wrongdoing. Efforts to reach Hanergy were unsuccessful.
Huishan, based in the northeastern Chinese city of Shenyang, says it is involved in all aspects of the dairy-supply chain, from growing feed and raising cows on its own farms to producing dairy products. It is one of the biggest dairy farm operators in China, according to filings, and said in its initial public offering prospectus that unlike competitors, it grows its own alfalfa for cattle feed.
In addition to questioning Huishan’s bookkeeping, Muddy Waters’ report in December said the alfalfa claim didn’t bear out, based on visits to 35 farms and five production facilities as well as drone flyovers of select Huishan sites. Huishan disputed the report, saying its financial statements were accurate and it produced about 90 per cent of its own alfalfa.
Ms Ge oversaw sales, government affairs and human resources at Huishan, according to filings. Huishan said in filings Ms Ge notified the chairman on March 21 that she would take a leave of absence because of work-related stress and didn’t want to be contacted. Huishan said in filings it later filed a missing-person’s report in Hong Kong, where she was last known to be, “out of concern for her whereabouts”. Efforts to reach her through the company have been unsuccessful.
Ms Ge’s removal came after eight other board members resigned over a two-month period. Since mid-April, Huishan’s board of directors has lacked the minimum number of three members required by the company’s articles of association to make decisions, filings show.
While most of the departed board members still retain executive roles at Huishan, the company’s chief financial officer, who was also on the board, decided to leave the company for health reasons, it said in filings. Huishan said none of the executives who resigned from their board posts had disagreements with the board, and there were “no other matters” that had to be brought to the attention of shareholders.
In March, after Huishan’s shares plunged, the company also denied what it described in filings as market rumours that Bank of China had conducted an audit after finding that its chairman had used company funds to invest in real estate using fake invoices. Huishan said it had missed some bank-loan payments and it was working with creditors and the government of its home province of Liaoning to help service loans.
Huishan’s outstanding bank loans reached 10.8 billion yuan at the end of September, more than 11 times its 909 million yuan in loans at the end of March 2013. Huishan’s net profit shrank to 593 million yuan for the six months ended September 30, down 24 per cent from the year-earlier period.
Source: The Wall Street Journal
Link: http://www.theaustralian.com.au/business/wall-street-journal/chinese-cowboys-sing-the-blues-when-muddy-waters-hits-town/news-story/0eb61f0021a502d4f9408c39a3f28512