World

Chinese dairy's shares plunge 91%

HONG KONG: Shares in a Hong Kong-listed Chinese dairy crashed more than 90 per cent on Friday, in one of the city's biggest sell-offs that wiped billions from its market capitalisation.

China Huishan Dairy collapsed 91 per cent in late morning trade before paring back marginally and heading into the break 85 per cent down at HK$0.42.

Trading in the shares, which scratched about $4.1 billion off its market value, was suspended by the start of the afternoon session.

It was not initially clear what caused the sudden sell-off but Bloomberg News reported that hedge fund Muddy Waters had said in December the firm was "worth close to zero" and raised questions about its profitability.

The fund, created by short-seller Carson Block, said Huishan had been overstating how much it had spent on cow farms in order to "support the company's income statement".

The dairy at the time called for a brief trading halt but dismissed the claims as groundless. It also said chairman Yang Kai had even built on his holdings in the firm, according to the Financial Times.

Until yesterday, Huishan had enjoyed a relatively stable performance since its 2013 listing.

"This kind of volatility in individual stocks will alert investors of the potential risk about investing in private Chinese companies," Mr Ben Kwong, executive director of KGI Asia Ltd in Hong Kong, told Bloomberg.

"Sharp volatility is sometimes related to margin calls from brokers so if they fail to settle margin calls there may be forced liquidation and that would increase selling pressure."

Margin trading, where investors use borrowed funds to buy stock, potentially generates bigger profits but also exposes traders to bigger losses.

Huishan has so far declined to comment. - AFP

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