Huishan Dairy switches to barter

Dark clouds hang over Shenyang in northeast China again. Huishan Dairy, with which FrieslandCampina has a joint venture, is on the brink of collapse now that investment bank HSBC is pushing for Huishan to go bankrupt. 

Huishan Dairy already has longer time difficulty paying the bills. The dairy giant has now even switched to bartering and has begged several suppliers to accept payments in powdered milk. That is what sources say to the Financieele Dagblad (FD). A striking action that, allegedly, no suppliers have yet agreed to. 

Being able to keep running
Huishan's special promotion shows that the company is doing everything it can to maintain production. The letter, in which HSBC insists on bankruptcy, describes that Huishan Dairy no longer meets the obligations it had previously agreed with the bank. This seems to be the final blow to the partner of FrieslandCampina. 

Huishan Dairy has been in trouble for almost 3 weeks. Trading in the dairy giant's share was halted after the price collapsed. As a result, the dairy organization fell by 90 percent in the Hang Seng Index in a short time. The rumors about embezzlement of major shareholder and chairman of the board Yang Kai also do not help.

Giving in to problems
Huishan Dairy was forced to acknowledge that it is short on cash. So it is certainly not surprising that investors no longer want to put money into the company. However, as long as there is no solution from the government of the Chinese province of Liaoning, the chance of a major restructuring of the debts is considered too great. That is what sources say to the FD.

And the problems don't seem to end for FrieslandCampina's partner. Several feed suppliers have stopped their deliveries to the dairy and are taking back the delivered containers with goods. All this for fear that the bills will never be paid. Naturally, the suppliers do not like to see their customers fall over, but paying in milk powder is really a bridge too far for them.

It is not the first time that Huishan Dairy has come up with special ways of financing. For example, last year the company sold part of its livestock and then leased it back.

Are there consequences for FrieslandCampina?
Order the joint venture between Huishan and FrieslandCampina, the consequences appear to be limited so far. The Chinese suppliers do, however, express their concerns and the number of calls to the joint venture has increased considerably.

The problems for FrieslandCampina are mainly reflected in the share package that was part of the deal with Huishan Dairy. At the end of the past financial year, that interest still amounted to 53 million euros. However, at current market prices, that would have been reduced to ''only'' 7,5 million euros.

In short: if the dairy giant collapses, there is little chance that FrieslandCampina will see something of that. 

Reassuring signals are hard to find
The letter from HSBC will not directly lead to the bankruptcy of Huishan Dairy. This is because it concerns a loan that only needs to be repaid in 2018. However, it is not a reassuring signal to the outside world. Huishan is less liquid compared to when the loan was taken out. Without a rescue, from the outside, the company's role seems over.

Kimberly Baker

Kimberly Bakker is an all-round editor at Boerenbusiness. She also has an eye for the social media channels of Boerenbusiness.

k.baker @boerenbusiness. Nl

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