Hong Kong’s securities regulator ordered a trading halt in shares of China Huishan Dairy Holding Co Ltd, indefinitely extending a suspension that’s been in effect for more than a month as concerns grow about the company’s finances. The unusual move by the Securities and Futures Commission (SFC) follows a warning by China’s largest integrated dairy firm last month that it was unable to operate because most of its board had quit. Huishan’s stock has been suspended from trade at the company’s request since March 24, when it plunged 85 percent. The firm has also missed loan payments and lost contact with a key executive in charge of its finances and cash.
The SFC declined to comment on the reason for the halt on Monday. Last month, Ashley Alder, head of the regulator, declined to say whether the watchdog was investigating Huishan, but he added it would continue in its efforts to probe IPO sponsor failings. Huishan, which went public in a $1.3 billion IPO in 2013, did not reply to a request for comment. The SFC can issue so-called “Rule 8 directions” under Hong Kong’s listing rules “on grounds that the market is misinformed, disorderly or unfair.”
The regulator rarely exercises that power, only doing so six times since 2011, according to its annual reports. By contrast, in the United States, the Securities and Exchange Commission ordered eight trading suspensions in the second quarter alone. Previous SFC trading halt orders include Hanergy Thin Film Power Group which the commission investigated after its shares mysteriously tumbled 50 percent in a matter of minutes. Trade remains suspended, although its parent company has since paid down overdue debt.
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Other examples are China High Precision Automation Group Ltd whose shares have been suspended since 2012, and sports fabric maker Hontex International Holdings which has been delisted following a probe into information provided to investors in the firm’s IPO prospectus. Huishan grabbed headlines last year when it sold and leased back part of its herd, but its most recent troubles have laid bare risks of excess leverage and financial engineering in unexpected quarters of corporate China.
On the backfoot since a December attack by U.S.-based short-seller Muddy Waters, Huishan has asked the regional Liaoning government for support and hired Deloitte Advisory last month to “analyse its financial position” after holding talks with creditor banks to ask for loans to be rolled over. Controlling shareholder Champ Harvest, which owns 70.8 percent of its stock and is majority held by Huishan Chairman Yang Kai, has pledged nearly all of the shares to secure loans. In the event of a default, banks could dump the shares in the market, creating a downward spiral in prices.
(Reporting by Elzio Barreto; Additional reporting by Donny Kwok and Michelle Price; Editing by Edwina Gibbs)