{ "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": 35, "pageCount": 47, "prevPage": 34, "nextPage": 36, "slideType": "appendix_disclosure", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 6, "notes": "The slide serves as a critical investigation into the company's financial health, highlighting the reliance on asset liquidation and high-cost debt.", "elementsJson": [ "paragraph", "footnote" ], "metadataConfidence": 0.95, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b96-835a69513742/35", "deckHref": "/decks/019dd923-622c-750b-8b96-835a69513742", "deckJsonHref": "/decks/019dd923-622c-750b-8b96-835a69513742.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b96-835a69513742#slide-35", "components": [ { "bbox": null, "kind": "callout", "text": "Were the cow sale leaseback transaction to fail, it would could put Huishan’s entire capital structure at risk.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-2b64-7193-87f8-e5fcda8bc5c0", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.07, "w": 0.78, "x": 0.11, "y": 0.09 }, "kind": "paragraph", "text": "the new deal fails. Its short-term debt financing requirements are pressing and lack of confidence could constrain or undermine its ability to roll over debt. Were the cow sale leaseback transaction to fail, it would could put Huishan’s entire capital structure at risk.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "6bd2ee73-4f9e-4894-a53a-e20026da0909", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.22, "w": 0.78, "x": 0.11, "y": 0.19 }, "kind": "paragraph", "text": "These “cows for cash” plans are not the Company’s only sales and leasebacks. Two plant and equipment sales and leasebacks were on the books at the end of FY16 for over RMB 541 million. Huishan added RMB 146 million of sales and leaseback of PP&E and dairy cows in 1H17, for a total of RMB 687 million payable in full within three years. Additionally, a new sale and leaseback for RMB 300 million for PP&E was announced on December 8, 2016 with JIC (Tianjin) Leasing Co., Ltd. bringing the total (ex-cows) to six sales and leasebacks involving four financing companies for nearly RMB 1 billion plant and equipment. Adding in the RMB 750 million replacement transaction for the cows, the total value of assets liquidated comes to RMB 1.7 billion. These transactions provide immediate cash infusions, but come with additional medium-term obligations.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b7927ea5-7c77-4666-b5ba-1148a5eb6df6", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.11, "w": 0.78, "x": 0.11, "y": 0.64 }, "kind": "paragraph", "text": "A Huishan Dairy official involved in the deal tried to put a positive spin on this extremely costly financing, “This will be our first serious effort to interact with East China’s high-end investors,” adding that these investors were more financially savvy. Outside of the news story, no formal announcement has been made by the Company regarding this offering. However, if these East China investors are really savvy this WMP will be a tough sell.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c282ed2e-2d5d-46ed-a84d-2a96aed81be6", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.18, "w": 0.78, "x": 0.11, "y": 0.45 }, "kind": "paragraph", "text": "In late June 2016, Huishan’s Executive Director, Ge Kun, stated that the Company would further consider “innovative financing tools” like the cow sales and lease back. Just two weeks later, the story of a new financing innovation for Huishan emerged in the Chinese news. The Company would be working with Zhejiang Internet Finance Trade Center Holding Co. Ltd. to raise short-term funds through the sale of WMPs to high net worth individuals. The Zhejiang Internet Finance Trade Center Holding Co. Ltd was to be responsible for marketing the product, and Huishan for issuing the credit guarantee. The tenor was slated to be only 183-days while paying an annual interest rate of 7.2%.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "fcafd919-a188-470f-af17-3820b8720cb0", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "“This will be our first serious effort to interact with East China’s high-end investors,” — A Huishan Dairy official", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd953-2b64-7193-87f8-ea6fa98095f5", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.13, "w": 0.78, "x": 0.11, "y": 0.81 }, "kind": "source-note", "text": "80 Huishan does not provide specifics on number or value of dairy cows. 81 Huishan 2016 Annual Report, p. 144 82 Huishan FY17 Interim Report, p. 31 83 http://Huishandairy.todayir.com/attachment/2016120912320100002682959_en.pdf 84 http://www.scmp.com/business/companies/article/1983717/dairy-operator-china-Huishan-says-it-will-continue-its-creative 85 解山乳业跨界合作：华东市场的另类开启方式，浙江互联网金融资产交易中心股份有限公司， http://weibo.com/ttarticle/p/show?id=2309351000063996784308406453, http://news.ifeng.com/a/20160713/49347710_0.shtml 86 Translation by MWC.", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "55f79973-b946-4c20-aa73-3a5a57760dc7", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.55, "x": 0.11, "y": 0.42 }, "kind": "title", "text": "Incremental “innovation”: Huishan plans to issue a high interest WMP.", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "d771a21a-4601-4b0c-be58-8a10b040cbb7", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.35, "x": 0.11, "y": 0.16 }, "kind": "title", "text": "Milking assets: More sales and leasebacks.", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "dc4e7ac8-5b70-402a-9df4-30829f14f2ef", "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 }