The crisis around Huishan Dairy is going on 04-17-2017

China’s largest dairy manufacturer Huishan Dairy is facing massive problems currently, after an unexpected fall of shares by around 85% recently. By now, most of the directors have left the company, leaving a hole in the strategy and management for the company to escape the crisis.


Source: Pixabay

It was March 24, when the share price of Huishan Dairy plumped down by 85% in rarely one and a half hours. Chairman Yang Kai has lost about three-quarters of his wealth and is yet to find for a public statement.

In the shadow of the huge fall is a high debt situation of the company, which is responsible for the cash shortage and worries of creditors. Some of the creditors, like wealth management firms and peer-to-peer platforms, have suggested to freeze the assets, which has been carried out by a Shanghai court and even consider law suit.


In addition to the financial crisis, the company is also facing a director exodus. Huishan Dairy’s board of directors is losing its members ever since. According to market intelligence firm CCM, six directors have already left their positions. The reasons are given target mostly focusing more on other jobs and personal relations.


Yang Kai’s wife and supervisor over money transactions as well as relationship management with creditors, Ge Kun, has vanished on March 21. Leaving the company without any contact. Huishan Dairy even has contacted the police in case of missing person. Her only note left states she needed more time off due to high stress at work. Hence, currently only three members are left on the board dealing with the business of the company.


However, Huishan Dairy is still one of the major employers and taxpayer in China’s economy-weak province Liaoning. This situation grant the enterprise to expect help from the local government and not be wiped out in a financial crisis. However, Liaoning has caught attention earlier to fake some economic numbers in order to hide the recession it falls to as the only province in China.  


A member of China’s large bank ICBC, one of the main creditors of Huishan Dairy estimates, that the company is facing over USD5.8 billion debt. Hence, large banks need to extend the loans for at least another year, while smaller money lenders are under enormous pressure. The incident has definitely scared of possible investors.


It is a huge question for stakeholders of the company if the Chinese government is willing to help the weakened enterprise. According to South China Morning Post, the government has announced to let over-debt companies fall without support, as part of the new supply-side reform.


The company already held a meeting with governmental executives and creditor banks at the end of March. During that meeting, the Liaoning province representatives agreed to a plan in solving Huishan Dairy’s debt problems, with the bankers showing trust in the more than 60 years old company.


What’s more, the profit of Huishan Dairy was shrinking during the last years, due to the rapidly falling milk prices in China. However, the company kept investing on a high level, covering the growing debt-to-equity ratio.


According to market intelligence firm CCM, China’s dairy industry is facing some real challenges nowadays. In fact, there is a sluggish consumption in the domestic market, still high costs for the raw materials, an increasing reliance on dairy imports, an unbalanced product mix in the market, and overall low reputation of the quality. Looking back at the year 2016, showing a sluggish market trend of the dairy industry in China, due to increasing imports of products with low prices


Purchase price of raw milk, Jan2014-Feb2017


Source: Ministry of Agriculture

The production of dairy products from 2009 to 2015 went up by 44%, while the industry profit in the same period increased by 210%. In the first three quarters of 2016, the output increased again by 7.5% year on year. The number of dairy manufacturers went down in the last years, resulting in a concentrating of sales by the top 20 producers in 54% of the national sales. 

About CCM

CCM is the leading market intelligence provider for China’s agriculture, chemicals, food & ingredients and life science markets. 

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