Muddy Waters-targeted China Huishan Dairy prepares for provisional liquidation

Hong Kong-listed China Huishan Dairy Holdings Ltd, which was targeted by short-seller Muddy Waters last year, announces today that it has instructed lawyers to prepare for its provisional liquidation.

“The board has instructed the Cayman legal advisors of the Company to prepare the relevant documentation to place the Company into provisional liquidation,” China Huishan Dairy said in a filing with the Hong Kong Stock Exchange.

“Such steps will take into account, as far as possible, options available to the company to preserve the assets of the group,” the firm noted, adding that its board earlier found that the net liabilities of its units in China “could have been” RMB10.5 billion (US$1.58 billion) as of March 31.

Last December, Muddy Waters alleged that the dairy firm overstated its sales, misrepresented its self-sufficiency in alfalfa and had an unannounced transfer of assets to an entity controlled by chairman and founder Yang Kai.

Trading of shares in the company has been suspended since March 24 while a week later the firm reported to the police in Hong Kong of its missing treasurer Ge Kun, who had disappeared after sending a letter saying she was taking time off and did not wish to be contacted.

The firm's CFO So Wing Hoi also resigned later, citing health issues, joining a boardroom exodus that has left just company founder and chairman comprising the board of directors.

In addition, the firm reported that bank confirmations indicate it has only RMB467 million (US$72.5 million) in cash and cash equivalents – when the management accounts said it should have RMB2.9 billion (US$450 million).