<article>Shares of<a style="color: #000080;" href="http://www.dealstreetasia.com/?s=huishan"> China Huishan Dairy Holdings Co.</a> sank by a record 85 percent in Hong Kong before the company halted trading.</article>

Shares of<a style="color: #000080;" href="http://www.dealstreetasia.com/?s=huishan"> China Huishan Dairy Holdings Co.</a> sank by a record 85 percent in Hong Kong before the company halted trading.
The sudden crash wiped out about $4.1 billion in market value. A record 779 million shares in the Shenyang-based company changed hands, the most on Hong Kong’s exchange. Chairman Yang Kai said online speculation its largest shareholder misappropriated 3 billion yuan ($435 million) to invest in Shenyang real estate are untrue, Netease reported, citing a phone interview.
The mysterious tumble will increase concerns about the risks that can befall investors in Hong Kong, after the 47 percent plunge by Hanergy Thin Film Power Group Ltd. in 2015. The move is also a vindication for <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=carson">Carson Block,</a> whose <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=muddy">Muddy Waters Capital LLC</a> said in December it was shorting Huishan Dairy and the company was “worth close to zero.” Huishan said at the time allegations in the report were groundless and contained misrepresentations.
&#8220;This kind of volatility in individual stocks will alert investors of the potential risk about investing in private Chinese companies,&#8221; said Ben Kwong, executive director of KGI Asia Ltd. in Hong Kong. &#8220;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.&#8221;
Liaoning’s government held a meeting Thursday afternoon with 23 creditor banks to discuss Huishan Dairy’s debt, Caixin reported, citing unidentified people.
A Huishan Dairy spokesperson declined to comment, saying the company will issue a statement. Lorraine Chan, a spokeswoman for Hong Kong Exchanges &amp; Clearing Ltd., said the bourse operator doesn’t comment on individual companies. Ernest Kong, a spokesman at the Securities and Futures Commission, declined to comment on the matter.
<h3>Block Surprised</h3>
Muddy Waters alleged in December that Huishan had been overstating its spending on its cow farms by as much as 1.6 billion yuan to “support the company’s income statement.&#8221; The report also alleged that the company made an unannounced transfer of a subsidiary that owned at least four cow farms to an undisclosed related party and Muddy Waters concluded that Chairman Yang controls the subsidiary and farms.
Speaking to Bloomberg News on Friday, Block said he was surprised by today’s tumble.
“It’s definitely not what I expected to happen,” Block said by phone from San Francisco. “I haven’t ever been involved with a stock that holds this steady pattern for a few months after our initial report, and then just crashes with no advance warning &#8212; that’s the first time for me.”
For more comments from Block, click here.
Before Friday’s plunge, Huishan had been one of the most stable stocks in Hong Kong. It fluctuated in a narrow range between HK$2.69 and HK$3.23 from the start of October 2015 through yesterday, never swinging more than 5.1 percent on a closing basis in a single trading day during that period. In July and August of 2015, the stock surged 60 percent amid a spate of open-market purchases by CEO and controlling shareholder Yang.
<h3>Short Interest</h3>
About 73 percent of Huishan’s shares are owned by Champ Harvest Ltd., a company that’s controlled by Yang. Ping An Bank Co. holds about 3.4 billion of Champ Harvest’s Huishan shares as collateral for outstanding borrowings of HK$2.1 billion ($270 million), and will take measures to ensure the safety of that loan, the lender said Friday.
The tumble had little impact on other shares, including Ping An Bank’s. The benchmark Hang Seng Index rose 0.1 percent in Hong Kong, while the lender slipped 0.1 percent on the mainland.
Short interest in the stock accounted for 13.9 percent of the free float on Wednesday, down from 20.6 percent in December, according to the latest data compiled by IHS Markit Ltd. and Bloomberg.
Among Block’s previous targets was Hong Kong-listed Chinese timber company Superb Summit International Group Ltd. In 2015, the SFC ordered the Hong Kong stock exchange to suspend all dealings in Superb Summit’s shares, which hadn’t traded since November 2014.
Hanergy shares have been suspended since their plunge in May 2015, while Li Hejun quit as chairman.
Also read:
<a style="color: #ff0000;" href="http://www.dealstreetasia.com/stories/short-seller-carson-block-launches-hedge-fund-28507/">Muddy Waters founder Carson Block launches hedge fund blending activism with long-short strategies</a>
<a style="color: #ff0000;" href="http://www.dealstreetasia.com/stories/better-rules-long-ipo-wait-mean-secondary-market-boom-for-unicorns-60985/">Better rules, long IPO wait mean secondary market boom for ‘unicorns’</a>
Bloomberg

Muddy Waters' target China Huishan Dairy sinks 85% in HK bourse

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