Embattled China Huishan Dairy Holdings Co Ltd is planning to carve up shares in the company among its creditor banks and existing shareholders as part of restructuring plans as it struggles to pay back billions of dollars of debt. The dairy, which has admitted facing “tremendous difficulties” getting a clear picture of its finances, said in a filing to the Hong Kong exchange it was ultimately looking for a “white knight” to financially support the firm.
Huishan’s woes came to light when its stock plunged 85 percent in March before being suspended. Since then most of its directors have quit, it has missed loan payments and lost contact with a key executive in charge of its finances and cash. As of March 31, Huishan owed $3.9 billion to creditors including Industrial and Commercial Bank of China, Bank of China Ltd and HSBC. It has hired debt restructuring advisers and forensic accountants to investigate gaps in its financial statements.
The firm, billed as China’s largest integrated dairy firm, said the restructuring plans would involve creating a new holding company that would include Huishan’s businesses and assets and some separate firms controlled by Chairman Yang Kai. This would then be wholly owned by the listed unit, which would be controlled by the mix of creditors, current shareholders and management, with stakes yet to be negotiated.
The plans – key to Huishan’s survival – are the latest twist in a rapid fall from grace that has laid bare the risks of excess leverage and financial engineering in corporate China. Under the proposed plans, which would need the support of Huishan’s creditors, the management team would continue to play a role “pending the eventual identification of a white knight to recapitalise the newly established group”, the firm said.