{ "docId": "019dd923-622c-750b-8b96-835a69513742", "docSlug": "c47ae4d76596", "documentTitle": "China Huishan Dairy Holdings (6863 HK)", "authorId": "51_Muddy_Waters", "authorName": "Carson C. Block", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2016-12-16 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 34, "pageCount": 47, "prevPage": 33, "nextPage": 35, "slideType": "valuation_table", "function": "analyze_data", "density": "overcrowded", "nDataPoints": 8, "notes": "Includes a table of debt components and narrative regarding failed financing transactions.", "elementsJson": [ "paragraph", "data_table", "footnote" ], "metadataConfidence": 0.95, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b96-835a69513742/34", "deckHref": "/decks/019dd923-622c-750b-8b96-835a69513742", "deckJsonHref": "/decks/019dd923-622c-750b-8b96-835a69513742.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b96-835a69513742#slide-34", "components": [ { "bbox": null, "kind": "callout", "text": "Huishan is resorting to creative financing that we believe shows its desperation.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-2b64-7193-87f7-d2bf10026341", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "metric", "text": "Total Debt: 16,041", "attrs": null, "subkind": "primary", "toolName": "Quantification", "toolSlug": "quantification", "confidence": null, "componentId": "019dd953-2b64-7193-87f7-d7deed47b8a7", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.78, "x": 0.11, "y": 0.53 }, "kind": "paragraph", "text": "Huishan is resorting to creative financing that we believe shows its desperation. In May, we jokingly suggested on Twitter that Huishan's announced cow sale and leaseback transaction with Guangdong Yuexin Finance Lease Co. Ltd, should be considered for the year's most humorous transaction award.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8522fdb8-ed4e-462f-9868-3b83093ef058", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.78, "x": 0.11, "y": 0.09 }, "kind": "paragraph", "text": "Using low end consensus forward EBITDA of ~ RMB 1.6 billion, Huishan is levered 10.0x with RMB 16.0 billion of debt. These leverage ratio numbers are equivalent to distressed leverage ratios. Because we believe Huishan's EBITDA is largely (if not entirely fraudulent), we see the real leverage ratio as greatly higher.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "df648b3f-8858-45ce-a245-e2f46e5bc8e7", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.11, "w": 0.78, "x": 0.11, "y": 0.61 }, "kind": "paragraph", "text": "In the end, it appears Guangdong Yuexin didn't like being the punch line. On November 27, 2016, just two days before the release of its 1H17 interim results, Management announced that it was \"reformulating its plans with respect to finance lease arrangements\" because the 50,000-cow sale lease-back for RMB 1 billion with Yuexin \"lapsed\" and never took effect. If Guangdong Yuexin's due diligence turned up anything similar to ours, that outcome is easy to understand.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "e0082c1c-1d08-4c80-9b89-840df26a5715", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.13, "w": 0.78, "x": 0.11, "y": 0.73 }, "kind": "paragraph", "text": "The November 27 bulletin announced a new counter party to the sale and leaseback, but on a smaller scale, with slightly higher ratio of collateral required: 40,000 cows for RMB 750,000 million, and at the same 6.2% interest rate. At the time of the original announcement, analysts speculated that this sale and leaseback was intended to raise funds intended for additional share buybacks. However, the original high-profile nature of the original cow leaseback and the timing of the new announcement, imply that the Company knows it cannot afford the fallout if", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "fd196b0f-1336-4103-84ab-c72a037898db", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.78, "x": 0.11, "y": 0.87 }, "kind": "source-note", "text": "Source: Bloomberg Earnings Estimate; URLs for Huishan Dairy and Bloomberg articles.", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "26cf89e8-2067-456b-a0d4-f93bac3926e8", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.33, "w": 0.34, "x": 0.33, "y": 0.18 }, "kind": "table", "text": "Short Term Debt: Current Bank Loan 10,805; Current Other Borrowings 282; Total Short Term Debt 11,087. Long Term Debt: Bank Loans 4,549; Other Borrowings 405; Total Debt 16,041. % Secured or Guaranteed 88%; % Unsecured 12%.", "attrs": null, "subkind": "data", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "93f16733-cc58-4271-b047-caf6d8514b40", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 40, "from": 30, "beatId": "df34ebd0-5aea-463a-bfea-d11d064de1c1", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "The Victory", "beatSlug": "overcoming-monster-the-victory", "evidence": "The report concludes that Huishan's financial reporting is likely fraudulent", "position": 2, "confidence": 0.8, "parentBeatName": "Turn", "parentBeatSlug": "turn" } ], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }