Huishan Dairy, $5.8 bln in debt, wrangles creditor support (updated)

Ingdan

02/11/2017 05:32

* Huishan outstanding debts $5.76 at end-July - doc 
    * Agrees restructuring plans with most China creditors 
    * Lenders likely to have to accept reduced repayments 
 
 (Recasts with details and context, changes dateline) 
    By Matthew Miller and Yan Jiang 
    BEIJING/HONG KONG, Nov 2 (Reuters) - Embattled China Huishan 
Dairy Holdings  6863.HK  has come to an agreement with most of 
its Chinese creditors to restructure its crippling debt, which 
has reached at least $5.76 billion according to an unreported 
restructuring plan seen by Reuters. 
    The restructuring plan, first proposed in August, shows 
Huishan's creditors claimed debts of 38 billion yuan ($5.76 
billion) by the end of July. That figure is 42 percent above the 
previously reported 26.73 billion yuan in outstanding debts. 
    The firm, billed as China's largest integrated dairy and an 
erstwhile exemplar of so-called innovative financing, has been 
battling for survival with huge outstanding debts to creditors 
that include Bank of China Ltd (BoC)  601988.SS  3988.HK  and 
HSBC Holdings  HSBA.L . 
    Its plight, along with recent troubles at other Chinese 
firms targeted by short sellers, have spooked international 
investors and made banks more cautious about lending to private 
companies.  urn:newsml:reuters.com:*:nRLP60692a urn:newsml:reuters.com:*:nRLP59767a    
    After Reuters approached Huishan's creditors and advisers 
with questions about the plan, the firm announced late on 
Wednesday it had reached an agreement "in principle" with more 
than half of its mainland lenders, representing over two-thirds 
of outstanding debt. 
    Reuters could not immediately reach Huishan for comment. 
    The dairy's stock plunged 85 percent in March before being 
suspended, three months after U.S. short-seller Muddy Waters 
published a report claiming the firm's financials were 
fraudulent. 
    Most of its directors subsequently quit, while the company 
missed loan payments and lost contact with a key executive in 
charge of its finances and cash. 
    Huishan - a hot property at its 2013 listing - has become a 
cautionary tale about the hidden risks of "innovative 
financing", after the firm raised funds from leasing its cows 
and selling wealth management products to rich investors. 
    Details of the restructuring, which involves lenders 
including BoC, Huishan's largest creditor, and Industrial and 
Commercial Bank of China Ltd  601398.SS  1398.HK , are still 
being negotiated, sources close to the discussions told Reuters. 
    Any restructuring would see creditors accept a major 
reduction in the amount they would be repaid, with some debt 
converted into equity in a new holding company, the sources 
said. The plan was drawn up by Shenzhen Fuhai Yintao Asset 
Management Co, an adviser retained by Huishan earlier this year. 
    The debt restructuring advisor declined to comment. 
     
    GRIM FINANCES 
    The restructuring plan calls for a reduction of debts to a 
maximum of 16 billion yuan, from the total 38 billion yuan. 
    Huishan's biggest domestic creditors include BoC, which has 
submitted claims of 4.36 billion yuan, along with China Minsheng 
Bank  600016.SS  and ICBC, which are owed 2.23 billion yuan and 
2.04 billion yuan, respectively. 
    Ping An Bank  000001.SZ , which has total claims of 2.4 
billion yuan, is among Huishan's biggest offshore creditors, as 
well a consortium of banks led by HSBC, China CITIC Bank 
International  CTCKW.UL , and Hang Seng Bank  0011.HK , which 
extended a syndicated loan to the listed vehicle. 
    The August plan also said Huishan Chairman Yang Kai and 
missing finance executive Ge Kun could not be part of the firm. 
Yang holds 90 percent interest in Champ Harvest Ltd, a British 
Virgins Islands firm that controls about 70 percent of Huishan's 
shares. Ge holds 10 percent in the BVI company. 
    The plan draws a grim picture of the company's finances.  
    At the end of July, Huishan's unrestricted funds amounted to 
about 29 million yuan, a tiny fraction of the unpaid liabilities 
which amounted to 2.63 billion yuan. 
    Fuhai Yintao estimated at that time the recovery rate for 
onshore secured creditors would average 37.59 percent, while 
unsecured creditors could expect recovery of 4.54 percent. 
    Deloitte Advisory, engaged as an independent forensic 
accountant, estimated that total assets at the end of June 
amounted to 25.9 billion yuan, while total liabilities amounted 
to 31.1 billion yuan. 
    According to Huishan's filing, once a new company has been 
established it will discuss with offshore creditors to the group 
and its related parties about restructuring those debts. 
    Any restructuring effort may be complicated by offshore 
litigation. Huishan added on Wednesday a major creditor of Champ 
Harvest has applied to liquidate the offshore holding company. 
 
 
($1 = 6.5991 Chinese yuan renminbi) 
 
 (Reporting by Matthew Miller in Beijing and Yan Jiang in Hong 
Kong, and Adam Jourdan in Shanghai; Additional reporting by Shu 
Zhang in BEIJING; Editing by Adam Jourdan and Stephen Coates) 
 ((adam.jourdan@thomsonreuters.com; +86 21 6104 1778; Reuters 
Messaging: adam.jourdan.thomsonreuters.com@reuters.net)) 
 
Keywords: CHINA HUISHAN/DEBT