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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