Huishan Dairy Denies Fake Documents, Real Estate Investment Controller Milked It of Funds



(Yicai Global) March 28 -- China Huishan Dairy Holdings Co. [HKG:6863] denied rumors of falsified documents and the misappropriation of USD435 million (CNY3 billion) by its controller of real estate investment.

The company issued an announcement on the precipitous decline in its share price today, flatly denying it approved the production of any fraudulent documents or the misappropriation of any company funds. After the firm's inquiries with the Bank of China (PBOC), PBOC confirmed that it neither audited the company nor found fraudulent documents or misappropriation of funds, and said contrary media reports were untrue. The company confirmed that, aided by northeastern Liaoning’s provincial government, it did hold a meeting with 23 bank creditors on March 23 to discuss the company's plan this year and to seek their assurances that its loans would continue as normal.

Huishan saw its share price slump suddenly in the morning on March 24. Its intraday price dropped by as much as 90.71 percent to HKD0.25 from HKD2.81 in a record decline for H shares, whereupon the company declared an emergency suspension. As of midday, the drop in the company’s share price narrowed slightly, closing at HKD0.42 per share, down 85 percent. The company’s board chairman and chief executive Yang Kai conceded a rupture of the company's capital chain.

Rumors cite two reasons behind this steep decline in Huishan Dairy’s share price, media reported. One is that after Muddy Waters LLC released two short-sale reports in December, some banks went to Huishan Dairy for an audit survey and PBOC found fraudulent company documents. The other is that Huishan Dairy’s major shareholder embezzled company funds of CNY3 billion in real estate investment, which cannot be retrieved.

Huishan Dairy said today that media reports also said the company could not contact one of its executive directors, Ge Kun. Ge is mainly responsible for company sales and brand building, and human resources and governance services. Because she was a member of Yang Kai’s team before the company listed in Hong Kong in 2013, she is also responsible for overseeing the company’s financial and cash business and maintaining its relationship with major banks. After the short sale reports released by Muddy Waters in December, Ge complained of increased work pressure. Yang received an email from Ge on March 21, in which the latter said the recent work stress had harmed her health and she would take a vacation and desired no contact at that time. The board has been unable to contact her ever since. Until further details come to light, the affair remains sunken in muddy waters indeed.

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