A top gin­seng buyer in Hong Kong leaves Cana­dian farm­ers hang­ing

As a big Hong Kong buyer strug­gles, farm­ers feel the pain “I’ve got to turn it into cash, and no one’s buy­ing”

Bloomberg Businessweek (Asia) - - CONTENTS - Edited by Christo­pher Power and Matthew Philips Bloomberg.com

Peter VanBerlo has C$2.5 mil­lion ($1.9 mil­lion) of pre­mium Amer­i­can gin­seng in 546 plas­tic-wrapped boxes, just wait­ing to be shipped to China. And wait­ing, and wait­ing.

His sale of the Septem­ber har­vest of the beige, gnarled roots—pop­u­lar in China for their pur­ported health and aphro­disiac ben­e­fits—is stalled be­cause the big­gest buyer, a com­pany in Hong Kong, melted down spec­tac­u­larly in Jan­uary, leav­ing farm­ers such as VanBerlo in limbo. “It’s just stuck here,” he says. “I don’t want it sit­ting here. The banks don’t like it sit­ting here. I’ve got to turn it into cash, and no one’s buy­ing, be­cause ev­ery­one is wait­ing to find out what hap­pens with this big buyer.”

The “big buyer” is Hang Fat Gin­seng, a com­pany whose stock trades in Hong Kong. It was founded by broth­ers Jef­frey and Matthew Ye­ung more than two decades ago. From its ori­gins as a whole­saler of Chi­nese medicine, Hang Fat grew to dom­i­nate the North Amer­i­can gin­seng trade, buy­ing as much as 70 per­cent of On­tario’s crop.

In 2015, how­ever, the com­pany sud­denly stopped pay­ing, and no one will­ing to com­ment for this ar­ti­cle knows why. Hang Fat had a stress­ful 2015 based on re­cent fil­ings. The pre­lim­i­nary an­nual re­port shows the com­pany has been dis­count­ing its prod­ucts. For all of 2015 the com­pany lost HK$438 mil­lion ($56.5 mil­lion) on sales of HK$1.2 bil­lion. In 2014 its main­land cus­tomers took 90 days to pay; last year, in the mid­dle of China’s eco­nomic slow­down, it took them 189 days.

The 150-odd gin­seng grow­ers in Nor­folk County, Ont., didn’t know what was hap­pen­ing to their big buyer, but by the fall it was clear some­thing was wrong. VanBerlo es­ti­mates that a third of lo­cal farm­ers sold their en­tire crop last year to Hang Fat and haven’t been paid, while an­other third are owed 50 per­cent. Then on Jan. 28, at 9:30 a.m., a ru­mor spread in Hong Kong that some­one was dump­ing Hang Fat stock. By 10:36 a.m., when trad­ing was sus­pended, the shares had plunged 91 per­cent, wip­ing HK$7.1 bil­lion off the com­pany’s mar­ket value.

Within weeks, a cred­i­tor of Hang Fat’s had ap­pointed re­ceivers from PwC to sell com­pany-owned shares equiv­a­lent to 25 per­cent of its mar­ket value. Hang Fat re­mains sol­vent and the Ye­ungs are still di­rec­tors, but any change of con­trol would give cred­i­tors the right to call in loans, ex­pos­ing it to fur­ther tur­moil.

The icy win­ters and sandy loam that gin­seng thrives on have turned On­tario into the world’s largest pro­ducer. For the grow­ers in Nor­folk County, 90 miles south­west of Toronto, gin­seng is buried gold. The crop contributes C$630 mil­lion an­nu­ally to the prov­ince’s econ­omy, ac­cord­ing to the On­tario Gin­seng Grow­ers As­so­ci­a­tion. But the as­so­ci­a­tion can’t pre­dict the im­pact of the Hang Fat “sit­u­a­tion,” as lo­cals call it.

Last month grow­ers met in Delhi, Ont., a town of 4,000 sur­rounded by rows of straw-cov­ered mounds of gin­seng be­neath tarps that pro­tect the shade-lov­ing plant in sum­mer. They packed into a lo­cal hall for the OGGA’s an­nual meet­ing. Chair­man Carl Atkin­son spoke of “sit­u­a­tions out of our con­trol” and “in­cred­i­ble in­sta­bil­ity.” “There was noth­ing new,” says VanBerlo, who grows the root on 60 of his 1,500 acres. He says about 4 in 10 lo­cal farm­ers rely heav­ily on the crop.

In Fe­bru­ary, Hang Fat said in a fil­ing to the ex­change that the Ye­ung broth­ers “were ex­pe­ri­enc­ing cer­tain fi­nan­cial dif­fi­culty,” and that 850 mil­lion shares had been sold to sat­isfy cred­i­tors. The Ye­ungs had pledged al­most a quar­ter of the com­pany’s shares against loans “for per­sonal use.” From 2011 to 2014, the year the com­pany went pub­lic, Hang Fat’s rev­enue al­most tripled, to HK$1.2 bil­lion, while profit grew at an an­nu­al­ized rate of 67 per­cent. In China’s stock mar­ket rout last July, Hang Fat shares halved in five days. In mid-Fe­bru­ary, Hang Fat said it planned to is­sue 40 bil­lion new shares for HK1¢ apiece, to pay debts. If the plan gets share­holder and reg­u­la­tory ap­proval, it will leave the Ye­ungs with less than 5 per­cent of the com­pany. Hang Fat and the broth­ers didn’t re­spond to re­quests for com­ment. In the re­cent 2015 an­nual re­port, the au­di­tors state “the Group’s abil­ity to con­tinue as a go­ing con­cern is highly de­pen­dent upon the fi­nan­cial sup­port from its bankers and the Group’s abil­ity of rais­ing cap­i­tal from new in­vestors.”

For VanBerlo, it’s one more chal­lenge in the busi­ness of grow­ing the lu­cra­tive but frag­ile crop. “Gin­seng wants to die the mo­ment you put the seed in the ground,” he says. “We’re just kind of hop­ing it’ll sur­vive this, too.”

Ben­jamin Robert­son, Ka­tia Dmitrieva, Jeanny Yu, and Jen Skerritt

The bot­tom line Gin­seng farm­ers add C$630 mil­lion to On­tario’s econ­omy, but that fig­ure could shrink be­cause of a ma­jor buyer’s melt­down.

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