Huishan Dairy: The Case of the Ill CFO and the Vanished Treasurer

It’s not a nice thing to say, but So Wing Hoi’s recent heart surgery may have helped insulate him somewhat from the dire development in company. The former KPMG partner, 48, was until recently executive director and chief financial officer at Huishan Dairy, China’s largest dairy farm operator. He resigned “for health reasons” effective April 17.

Another executive director, Ge Kun, who manages treasury operations, is also being careful about her health. On March 21, she wrote chairman and CEO Yang Kai that she was very stressed at work, was taking a leave of absence, and did not want to be contacted. “Out of concern for her whereabouts, the Company has lodged a missing person’s report with the Hong Kong Police as she was last known to be in Hong Kong,” said Huishan on March 31.

Whether Huishan can continue as a going concern is now in question. All told, Huishan and Yang Kai between them are said to owe some US$5.8 billion

You know that things are dire when your finance leaders start to abandon ship. The company’s own state of health is dreadful. Its shares fell 85% in Hong Kong in March after news circulated that Yang Kai had pleaded with 23 creditor banks to restructure Huishan’s loans. Some banks had apparently been open to the idea, upon the prodding of the Liaoning government (Huishan operates in the province).

But in a filing with the Hong Kong Stock Exchange on April 10, the company reported that it had been declared in default of a dual tranche facility for “non-compliance with certain of the covenants.” The principal amount outstanding is US$180 million and HK$156 million. At the same time, the Shanghai courts froze assets owned by the group, Yang Kai and his wife to the tune of RMB546 billion (US$79 million), the amount owed to asset management company Gopher.

Whether Huishan can continue as a going concern is now in question. Only  Yang Kai and the vanished Ge Kun still on the board – five independent non-executive directors and three executive directors, including the CFO, have stepped down. All told, Huishan and Yang Kai between them are said to owe some US$5.8 billion to banks and other creditors, including peer-to-peer lending platform Hongling Capital.

The Trusted Treasurer

What went wrong? The role of the CFO in the debacle has yet to be chronicled, but the treasurer’s disappearance is telling. According to Huishan, Yang Kai learned that payments due to some banks were delayed only on the day he received the letter from Ge Kun, whose main qualification to act as treasurer appears to be her closeness to the CEO, not her training and expertise in financial management.

The 42-year-old Ge Kun is not a finance professional. She earned a “diploma of practical secretary in foreign affairs from Shenyang Television and Broadcasting University,” and a “graduate certificate of self-study examination of Chinese language and literature from Liaoning University,” according to Huishan’s website.

But she has been an associate of the CEO for 15 years. When Yang Kai founded Shenyang Longdi Foods in 2002, Ge Kun joined him as general manager and director. When Longdi was renamed Huishan Dairy in 2012, the year before it listed in Hong Kong and turned Yang Kai into a billionaire, Ge Kun was named senior vice president in charge of sales and branding, human resources and government affairs. She owns 10% of Champ Harvest Limited (Yang Kai owns 90%), the vehicle that controls Huishan Dairy.

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