Why Huishan Dairy’s 90% plunge in Hong Kong matters

SINGAPORE (April 10): China Huishan Dairy Holdings is giving “milking investors” a whole new meaning as shares plunged as much as 90% and raised fresh questions about China debt troubles.

I first explored the Shenyang-based company in May 2016, questioning the wisdom of its cow-leaseback transactions. China’s largest dairy-farm operator was selling about 50,000 animals, a quarter of its herd, to a finance company for about US$146 million ($204 million) and renting them back. It seemed a long way to roam to procure capital and highlighted how executives were circumnavigating government curbs on risky lending.

Yet the cows may have been the least of it. So says Muddy Waters Capital, which in December announced it was shorting Huishan Dairy and described it as a “fraud” and “worth close to zero”. At the time, company officials dismissed Muddy Waters’ allegations as baseless. Vindication seemed to arrive on March 24, as Huishan Dairy shares suddenly crashed, wiping out more than US$4 billion of market value, and investors scrambled for copies of Muddy Waters’ research.

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