(Yicai Global) Oct. 14 -- Chinese meat processing giant Shuanghui Investment and Development has sought to justify its CNY8 billion (USD1.2 billion) dividends that exceed the indebted company's net profit in 2020.

Cash dividends taking a high proportion of 2020 profits is to maintain a long-term stable dividend ratio which was relatively low in 2019, the Henan province-based firm wrote in a reply to the Shenzhen Stock Exchange yesterday. Last year, the company made CNY6.3 billion in net profit.

The generous move has attracted regulatory attention. On Oct. 8, the SZSE asked Shuanghui to explain whether the related transactions and large cash dividends have caused a shortage of funds.

The firm depends on borrowed funds. Shuanghui had almost CNY2.8 billion in short-term loans as of June 30, which was 50 percent higher than its balance of monetary funds, according to its financial report. It borrowed CNY11 billion (USD1.7 billion) and repaid CNY10.4 billion in loans in the first half.

Shuanghui's coffers are getting emptier. The firm's monetary funds decreased nearly by half as of June 30 from a quarter earlier due to its large-scale dividends delivered in May.

Sharing is caring, per Shuanghui. Corporate annuities, insurance funds, and overseas pension funds aim to obtain stable and high returns, said the firm. Ensuring a continuously high cash dividend ratio is in line with the interests of small and medium-sized shareholders, it added.

Moreover, the dividends of last year did not have a material adverse effect on the company’s accounts, Shuanghui added.

But big shareholders benefit from sharing more than small ones. From 2018 to the first half of 2021, the company's controlling shareholders earned more than CNY11 billion in dividends, accounting for more than 70 percent of the total.

Sharing almost all the profits with shareholders is becoming usual for Shuanghui. From 2018 to May 2021, the company distributed almost CNY16.2 billion in cash dividends, or nearly 98 percent of its net profit during the same time period. But in 2019, the ratio was 61 percent.

Shuanghui's stock price [SHE: 000895] dropped 2 percent to CNY27.17 (USD4.20) in the afternoon.

Editor: Emmi Laine, Xiao Yi