Innovative financing sours dairy ‘giant’ in China’s NW

ZHANGWU, China, April 4, (RTRS): The crisis at Huishan Dairy, one of China’s biggest dairy companies, is a stark reminder of what can lurk in the dark corners of corporate China, where rapid growth can go hand in hand with tangled finances and heavy debt.

China Huishan Dairy Holdings Co Ltd embraced what its executives called “innovative financing”, from the sale and leaseback of its cows, to selling wealth management products for rich investors – financial antics that seem incongruous with the dusty fields, tin-roofed sheds and plastic greenhouses of Zhangwu county in northeast China.

Now it is battling swollen liabilities, a short-term debt squeeze and considerable unwanted attention. After a late 2016 short-selling attack, it saw an 85 percent drop in its shares in a single day last month, wiping $4 billion off its value and triggering a stock suspension.

It has reported a key finance executive missing.

Its misfortunes are a reminder that even as banks’ bad debt numbers stabilise, there remain many question marks over the quality of their balance sheets. Those exposed to Huishan include Industrial and Commercial Bank of China, Agricultural Bank of China, regional lenders, leasing companies and online loans firms.

“When you move down to the local lenders in less developed provinces and counties, there could be hundreds and thousands of similar cases to Huishan, albeit at a smaller scale,” said Shawlin Chaw, Control Risks analyst focused on Greater China.

In 2013, retail investors flocked to Huishan’s $1.3 billion Hong Kong listing, which was priced at the top of its forecast range.

The provincial government was vocal in its support.

“Next year, we can all go to work at Huishan Dairy!” Liaoning government slogans proclaimed, in reference to the promised creation of tens of thousands of local jobs.

Now that Huishan has missed debt payments, that same government has brokered meetings between the dairy and its 23 creditor banks, including big names such as Bank of China Ltd, AgBank and Ping An Bank Co Ltd.

Local officials declined to comment for this story.

Falling milk prices and rising feed costs had caused problems for the region, local farmers said.

“This year is the worst I’ve seen for the dairy cattle industry,” said Shan Jiawu, a dairy farmer in Zhangwu, who has been in the business for over a decade.

Around the county where Huishan has dozens of farms, guards at two of three operations visited by Reuters said the farms were functioning normally, though reporters were not allowed in. A third was shut.