China investment: Oh, no! Not an udder one
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China investment: Oh, no! Not an udder one

All sorts of things can go wrong when you start pledging cows as collateral.


There was a sense of déjà vu about the collapse of China Huishan Dairy Holdings’ share price, which dropped 85% in a week on the Hong Kong exchange in late March. It is not the first foreign-listed Chinese company to impoverish investors. In fact, it is not even the first upstream milk-producing foreign-listed Chinese company to impoverish investors (for that, see Singapore-listed disaster China Milk).

The case is characteristically complicated. Chairman Yang Kai owns 90% of a company called Champ Harvest, which is also Huishan’s largest shareholder, and Yang has pledged almost all of his 71% stake in Huishan as collateral to borrow from banks or get margin finance to trade stocks, most of it pledged to Ping An Bank. 


Meanwhile, the company’s treasury and cash operations manager, Ge Kun, cannot be located, after sending a letter saying work stress had affected her health. 

The bookrunners of Huishan’s 2013 IPO, Deutsche Bank, HSBC, Goldman Sachs and UBS, will be watching nervously; the SFC is taking a dim view of IPOs of mainland businesses that fleece investors. UBS is already in hot water for its role on Sino-Forest.

But perhaps the bank with the most to worry about is Ying Hua Finance Leasing, which is understood to have been part of a deal by Huishan to raise Rmb750 million ($109 million) in November, secured against 40,000 cows (among other things). If the company ends up in formal default, we will be treated to the fine sight of the financial institution attempting to collect this vast bovine collateral. What does a leasing company do with 40,000 cows? Where does it put them?

Shortly before that deal, the now-missing Ge Kun spoke of “more innovative financing tools in the future”. It would appear she needs some now.

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