* Huishan says lenders warn of loan covenant breach
* Bank letter a "reminder" of loan obligations -source
* Shanghai court orders $79 mln assets frozen
* Huishan shares plunged 85 pct in one day last month
(Adds comments from expert, no-comments from Huishan and banks,
By Adam Jourdan
SHANGHAI, April 11 China Huishan Dairy Holdings
Co Ltd said it has received a warning of broken loan
covenants and that some assets have been frozen, in a double
blow for an indebted firm whose shares have crashed and whose
finance executive is missing.
Lenders including HSBC Holdings PLC sent the dairy
a letter stating "non-compliance with certain of the covenants"
of a $200 million loan agreed in 2015, Huishan said in a stock
exchange filing late on Monday, adding it was seeking legal
The dairy also said a Shanghai court had frozen assets worth
546 million yuan ($79 million) affecting six firms it owned
after an application from creditor Gopher Asset Management Co
Ltd. Gopher made a previous application in Hong Kong, which was
Huishan made headlines last year when it sold and leased
back part of its herd in what one executive called "innovative
financing". But risks linked to its debt-fuelled growth took
centre stage after a December report from U.S.-based
short-seller Muddy Waters questioned its accounting and debt
The letter from lenders does not mean Huishan defaulted on
payments or that creditors are necessarily seeking accelerated
repayment. But notification of broken covenants is regarded as a
strong warning and analysts said it was a worrying sign.
"Violating loan covenants typically makes a loan immediately
due. When the company can't pay, receivership typically
follows," said accounting professor Paul Gillis at Peking
University's Guanghua School of Management. "I think this is
A person familiar with the process told Reuters that HSBC
sent a letter to Huishan as a "reminder" of its loan obligations
and covenants, as per common practice. The loan is due in 2018
and the bank has not asked for repayment ahead of schedule, said
the person, who was not authorised to speak publicly on the
matter and so declined to be identified.
HSBC declined to comment.
The letter comes weeks after Huishan met local authorities
and creditors to help avert lenders calling in loans or filing
suits. Soon after, trading of Huishan's shares was suspended
when the stock plunged 85 percent in a single day.
Since the share drop, Huishan has said it missed some loan
repayments and filed a missing person report in Hong Kong after
losing contact with an executive in charge of finances.
The loan in question in the letter was taken out on Oct. 26
2015 with HSBC, China CITIC Bank International Ltd,
Hang Seng Bank Ltd, Bank of Shanghai Hong Kong Ltd
, China Merchants Bank Co Ltd and Chong
Hing Bank Ltd.
The principal is outstanding in two tranches, US$180 million
and HK$156 million (US$20.07 million), Huishan said.
Bank of Shanghai and China Merchants did not respond to
requests for comment. Reuters could not reach Chong Hing for
comment. Hang Seng and China CITIC declined to comment.
Under the loan agreement, Huishan Chairman Yang Kai and
missing executive Ge Kun must remain in their posts, and Yang
and Ge together must own at least 30 percent of Huishan's issued
Huishan's controlling shareholder Champ Harvest Ltd owns
over 70 percent of its stock and is majority held by Yang. Champ
Harvest has pledged nearly all of the shares it owns as
collateral to secure loans.
A Huishan spokesman declined to comment on what covenants
the banks said had been breached.
In a 2015 filing, Huishan said if any covenants were
breached, lenders may "cancel the facility granted to the
Company under the Facility Agreement or any part thereof" and
may "require immediate repayment of the Loan together with all
other sums due under the Facility Agreement."
($1 = 7.7716 Hong Kong dollars)
(Reporting by Adam Jourdan in SHANGHAI; Additional reporting by
Justin George Varghese in BENGALURU, Sumeet Chatterjee and
Michelle Price in HONG KONG, Engen Tham and SHANGHAI newsroom;
Editing by Sai Sachin Ravikumar and Christopher Cushing)