(Yicai Global) Aug. 2 -- Sichuan Swellfun’s shares slumped before rebounding after the Chinese liquor maker abandoned a CNY560 million (USD87 million) plan to build a joint venture distillery in Moutai, the hometown of liquor in Guizhou province.

Swellfun [SHA: 600779] opened 8.5 percent lower today but recovered to climb as much as 2.7 percent in the afternoon before finishing 0.6 percent up at CNY102.80 (USD15.91). The broader Shanghai Composite Index gained 2 percent.

Chengdu-based Swellfun decided to terminate the JV plan after failing to agree with Guizhou Moutai Town Guowei Wine Group on a number of key business arrangements after negotiations, it announced yesterday evening.

Neither party bears any responsibility for this, and they will continue to explore potential cooperation, Swellfun added.

Swellfun signed a framework deal with Guowei Wine and its founder, Liang Mingfeng, in April to set up a plant in Moutai to produce local special sauce-flavored liquors. Total investment in the JV was to be CNY800 million (USD124 million), of which Swellfun was to contribute 70 percent.

Sauce-flavored liquors are a spirits sub-category represented by China’s well-known Kweichow Moutai, while Swellfun generally produces liquor with a strong flavor. Liang worked as a distilling engineer at Kweichow Moutai before setting up Guowei Wine, according to public information.

Swellfun had a CNY42 million (USD6.5 million) loss in the second quarter of this year on operating income of CNY597 million, according to its semi-annual earnings report published on July 24. The firm said it was pushing ahead with its high-end strategy in the quarter, increasing spending on related projects, which will affect short-term profits.

Swellfun’s shares have been falling since its semi-annual report was disclosed. The stock has declined 36 percent since an all-time high of CNY160.57 on July 22.

Editor: Peter Thomas