Hong Kong orders halt in trading of China Huishan Dairy shares

Hong Kong’s securities regulator ordered all trading in China Huishan Dairy Holding Co Ltd shares to be suspended on Monday, indefinitely extending a suspension in place for more than a month as concerns about the company’s finances grow.

The unusual move by the Securities and Futures Commission (SFC) follows a warning by China’s largest integrated dairy firm last month that it was unable to operate because most of its board had quit.

Huishan said in a statement it had received notice from the Securities and Futures Commission (SFC) of the suspension.

The SFC can issue so-called Rule 8 directions under Hong Kong’s listing rules “on grounds that the market is misinformed, disorderly or unfair”.

The dairy company also said on Monday that Bank of China’s Macau branch had requested it repay the principal of a $50 million loan dated April 28, 2014, and interest of $937,363.11 by May 16.

Huishan’s stock has been suspended at the company’s request since March 24, when it plunged 85 percent. The firm has missed loan payments and lost contact with a key executive in charge of its finances and cash.

The SFC declined to comment on the reason for the halt in trading on Monday. Last month, Ashley Alder, head of the regulator, declined to say whether the watchdog was investigating Huishan but said it would continue in its efforts to investigate initial public offering (IPO) sponsor failings.

Huishan, which went public in a $1.3 billion IPO in 2013, did not reply to a request for comment.

The regulator rarely exercises its Rule 8 power, only doing so six times since 2011, according to annual reports. By contrast, the U.S. Securities and Exchange Commission ordered eight trading suspensions in the second quarter alone.

Previous SFC trading halt orders include Hanergy Thin Film Power Group which the regulator investigated after its shares mysteriously tumbled 50 percent in a matter of minutes. Trade in the shares remains suspended, although the parent company has since paid down overdue debt.

Other examples are China High Precision Automation Group Ltd whose shares have been suspended since 2012, while sports fabric maker Hontex International Holdings was delisted following an investigation into information provided in its IPO prospectus.

Huishan grabbed headlines last year when it sold and leased back part of its herd, but its most recent troubles have laid bare the risks of excess leverage and financial engineering in unexpected quarters of corporate China.

On the back foot since a December attack by U.S.-based short-seller Muddy Waters, Huishan has asked the regional Liaoning government for support. It also hired Deloitte Advisory last month to analyse its financial position after holding talks with creditor banks about rolling over loans.

Controlling shareholder Champ Harvest, which owns 70.8 percent of its stock and is majority held by Huishan Chairman Yang Kai, has pledged nearly all of the shares to secure loans. In the event of a default, banks could dump the shares in the market, creating a downward spiral in prices.


Source: Reuters

Link: http://www.reuters.com/article/huishan-regulator-idUSL4N1IA1B9


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