Huishan Dairy, Muddy Waters target, plummets 85% in HK

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in China Huishan Dairy Holdings Co Ltd plunged 85% yesterday, wiping off around $4 billion of its market value before trading was halted in its second suspension in three months.

It was not immediately clear what triggered the slide.

Barron’s Asia quoted Huishan Dairy chairman Yang Kai as saying that the share fall was the result of a short-seller attack.

The dairy firm has previously come under attack from US-based short-seller Muddy Waters Capital LLC.

Business website Caixin reported yesterday that the government of Liaoning, where Huishan Dairy is based, met with 23 of the firm’s creditor banks a day earlier, including HSBC Holdings Plc, Bank of China Limited and Industrial and Commercial Bank of China Limited (ICBC).

The three banks did not immediately respond to requests for comment while calls to the Liaoning government financial work office went unanswered.

In December, Muddy Waters questioned the firm’s profits and said it had inflated spending on its cattle farms to artificially raise capital expenditure figures — an attack that also led to a trading suspension.

Muddy Waters said at the time it believed the Chinese dairy firm to be worth “close to zero” because it had misrepresented its selfsufficiency in alfalfa used as feed for cattle, was over-leveraged and had overstated its spending.

Huishan Dairy has said the allegations are groundless.

The company said yesterday that it would issue an announcement as soon as practicable after completing enquiries.

Muddy Waters could also not be immediately reached for comment.

Huishan Dairy, which operates 82 farms in Liaoning province, went public in 2013 in a US$1.3 billion initial public offering, with global investment banks Deutsche Bank AG, Goldman Sachs Group Inc, HSBC and UBS AG acting as sponsors of the listing.

In an unusual deal last April, it sold 50,000 dairy cows to Guangdong Yuexin for one billion yuan ($145 million) after which the buyer leased back the cattle to the company.

Huge paper losses could spell pain for Ping An Bank, a unit of Ping An Insurance Group Co of China Ltd.

Huishan Dairy’s controlling shareholder, a company controlled by chairman Yang, secured a loan with the bank worth HK$2.14 billion in late 2016 backed by Huishan Dairy’s shares, filings show.

Ping An Bank said in an emailed statement it did not directly own any shares and that it was seeking more information about Huishan Dairy’s situation.

Trading volume in Huishan Dairy shares soared to 779 million shares yesterday, the highest level since its debut, with the bulk of the sell-off occurring in the last 20 minutes of trade before midday.

The shares fell to as low as HK$0.25 before edging back up to HK$0.42 when the trade was halted.

The tumble had little impact on other shares. The benchmark Hang Seng Index rose 0.1%.

Huishan Dairy posted revenues of 4.5 billion yuan (US$647.9 million) in the year to end-March 2016, up 15% from the same period in 2015.