China’s largest dairy operator Huishan says creditors agree to debt restructuring

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China’s largest dairy farm operator Huishan Dairy said on Wednesday that a debt restructuring plan has won the support of more than half of its mainland creditors, representing more than two-thirds of the outstanding amount owed by the company.

In a statement to the Hong Kong stock exchange late Wednesday, Huishan Dariy said its chairman and controlling shareholder Yang Kai had notified the company that creditors willing to take part in the restructuring plan had signed an agreement to support it.

The company first proposed the debt restructuring plan in July, after its shares mysteriously plunged 86 per cent in Hong Kong on March 24, which came as a vindication for many of its short sellers, including Muddy Waters, that accused the company of overstating its spending on its cow farms by as much as 1.6 billion yuan (US$243 million).

The company’s shares have been suspended from trade since that time.

Under the plan, some or all of the company’s businesses and onshore assets of Yang and his other ventures would be grouped together and injected to form a new entity wholly held by its onshore creditors.

How the debt bubble burst for China’s Huishan Dairy

Meanwhile, the board of directors of the new company will discuss with offshore creditors of the group and Yang’s entities on how to restructure its offshore debt.

The plan could bring the financial issues related to the company under the mainland’s legal system as the new entity would be subject to “PRC legal proceedings and requirements”, according to the filing. This could add to the uncertainties foreign creditors and shareholders face, critics said when the plan was first rolled out in July.

China’s Huishan Dairy rolls out debt restructuring plan amid cash crunch

The Liaoning-based company also said it has been able to operate business since the share trading suspension.

“Overall, the group is on track to have positive cash flow from normal operating activities on a monthly basis and remains hopeful to achieve this by 31 March 2018,” according to the filing.

“As a result of a recent improvement in market conditions for the group’s products, the group noted an increasing trend in the average selling price of raw milk and the group’s daily production volume of raw milk has also picked up gradually,” the company said.

A major creditor of Champ Harvest, the parent company of Huishan Dairy that owns a 70.8 per cent stake in the company on behalf of Yang, has applied for the start of liquidation procedures against Champ Harvest.

Huishan Dairy has seen its profit drop dramatically in the past few years partly thanks to failing dairy market prices amid a global supply glut.

The debt-laden company also said it had benefited from an “informal standstill” of the debt repayments by a majority of its creditors.

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