BEIJING/HONG KONG (Reuters) - Embattled China Huishan Dairy Holdings has come to an agreement with most of its Chinese creditors to restructure its crippling debt, which has reached at least $5.76 billion according to an unreported restructuring plan seen by Reuters.
The restructuring plan, first proposed in August, shows Huishan’s creditors claimed debts of 38 billion yuan ($5.76 billion) by the end of July. That figure is 42 percent above the previously reported 26.73 billion yuan in outstanding debts.
The firm, billed as China’s largest integrated dairy and an erstwhile exemplar of so-called innovative financing, has been battling for survival with huge outstanding debts to creditors that include Bank of China Ltd (BoC) and HSBC Holdings.
Its plight, along with recent troubles at other Chinese firms targeted by short sellers, have spooked international investors and made banks more cautious about lending to private companies.
After Reuters approached Huishan’s creditors and advisers with questions about the plan, the firm announced late on Wednesday it had reached an agreement “in principle” with more than half of its mainland lenders, representing over two-thirds of outstanding debt.
Reuters could not immediately reach Huishan for comment.
The dairy’s stock plunged 85 percent in March before being suspended, three months after U.S. short-seller Muddy Waters published a report claiming the firm’s financials were fraudulent.
Most of its directors subsequently quit, while the company missed loan payments and lost contact with a key executive in charge of its finances and cash.
Huishan - a hot property at its 2013 listing - has become a cautionary tale about the hidden risks of “innovative financing”, after the firm raised funds from leasing its cows and selling wealth management products to rich investors.
Details of the restructuring, which involves lenders including BoC, Huishan’s largest creditor, and Industrial and Commercial Bank of China Ltd, are still being negotiated, sources close to the discussions told Reuters.
Any restructuring would see creditors accept a major reduction in the amount they would be repaid, with some debt converted into equity in a new holding company, the sources said. The plan was drawn up by Shenzhen Fuhai Yintao Asset Management Co, an adviser retained by Huishan earlier this year.
The debt restructuring advisor declined to comment.
The restructuring plan calls for a reduction of debts to a maximum of 16 billion yuan, from the total 38 billion yuan.
Huishan’s biggest domestic creditors include BoC, which has submitted claims of 4.36 billion yuan, along with China Minsheng Bank and ICBC, which are owed 2.23 billion yuan and 2.04 billion yuan, respectively.
Ping An Bank, which has total claims of 2.4 billion yuan, is among Huishan’s biggest offshore creditors, as well a consortium of banks led by HSBC, China CITIC Bank International, and Hang Seng Bank, which extended a syndicated loan to the listed vehicle.
The August plan also said Huishan Chairman Yang Kai and missing finance executive Ge Kun could not be part of the firm. Yang holds 90 percent interest in Champ Harvest Ltd, a British Virgins Islands firm that controls about 70 percent of Huishan’s shares. Ge holds 10 percent in the BVI company.
The plan draws a grim picture of the company’s finances.
At the end of July, Huishan’s unrestricted funds amounted to about 29 million yuan, a tiny fraction of the unpaid liabilities which amounted to 2.63 billion yuan.
Fuhai Yintao estimated at that time the recovery rate for onshore secured creditors would average 37.59 percent, while unsecured creditors could expect recovery of 4.54 percent.
Deloitte Advisory, engaged as an independent forensic accountant, estimated that total assets at the end of June amounted to 25.9 billion yuan, while total liabilities amounted to 31.1 billion yuan.
According to Huishan’s filing, once a new company has been established it will discuss with offshore creditors to the group and its related parties about restructuring those debts.
Any restructuring effort may be complicated by offshore litigation. Huishan added on Wednesday a major creditor of Champ Harvest has applied to liquidate the offshore holding company.
($1 = 6.5991 Chinese yuan renminbi)
Reporting by Matthew Miller in Beijing and Yan Jiang in Hong Kong, and Adam Jourdan in Shanghai; Additional reporting by Shu Zhang in BEIJING; Editing by Adam Jourdan and Stephen Coates