China Huishan Dairy Shares Plunge 91% Before Trading Halted

(Beijing) — Shares of China Huishan Dairy Holdings Co. Ltd.’s plunged 91.4% Friday before the company halted trading at HK$0.42 per share, down 85%, in the largest drop ever recorded on the Hong Kong stock exchange.

The dramatic fall came after financial regulators in northeast Liaoning province held a meeting on Thursday afternoon with 23 creditor banks to discuss Huishan’s debts, people with knowledge of the matter told Caixin. The creditor banks include Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, and Ping An Bank.

China Huishan Dairy is the country’s largest cattle farms operator. It came under the media spotlight last December when its stock was shaken after being attacked by short seller Muddy Waters, which published reports alleging Huishan’s fraudulent and overstated revenue. Huishan denied the allegations.

Carson Block, the founder of Muddy Waters, said in an interview with Caixin Friday that he was happy with the slump in the share price, even though the outcome was unexpected.

The drop in the dairy company’s share price followed market rumors alleging that auditors from Bank of China found that major shareholders had embezzled 3 billion yuan from the company, and some executives had been held accountable. But bankers from the state-owned lender told Caxin that their auditors were in no position to carry out such an audit. People close to Bank of China said the lender had no more than 5 billion in outstanding loans to Huishan.

“If Bank of China’s branch in Liaoning province found such a big wrongdoing, they would already have let their headquarters know,” said the source close to the Bank of China. “And if 3 billion yuan was involved, it is impossible that no relevant documents can be found in their headquarters.”

In June 2015, Champ Harvest Ltd., the controlling shareholder of Huishan Dairy, pledged its shares in the dairy company as collateral to obtain loans from Ping An Bank. To date, Champ Harvest’s outstanding loans with Ping An Bank total HK $2.1 billion, and 3.434 billion shares have been pledged. Market observers believe the drastic drop in Huishan’s share price could result in bad loans incurred at Ping An Bank.

Contact reporter Dong Tongjian (tongjiandong@caixin.com)