May 9, 2017 / 7:32 AM / 2 years ago

UPDATE 1-Indebted Huishan Dairy under pressure as Bank of China calls in loan

(Adds that banks sent letter to Huishan in April)

* Bank of China calls in $50 mln loan, asks for payment by May 16

* Other creditors monitoring situation closely -sources

* Some banks sent letter in April about broken covenants

By Sumeet Chatterjee

HONG KONG, May 9 (Reuters) - China Huishan Dairy Holdings Co Ltd, wrestling with debt, battered shares and an empty boardroom, could come under more pressure from its banks after one creditor demanded it repay a $50 million loan, people familiar with the matter said.

Huishan, whose shares are suspended indefinitely on the Hong Kong exchange, said late on Monday that Bank of China Ltd’s Macau branch had asked it to repay the outstanding principal on a $50 million loan, with interest of $937,363 by May 16.

It gave no further details.

The crisis at Huishan has highlighted the complexities of resolving corporate debt problems in the world’s second-biggest economy. Most of the firm’s board has resigned, a key finance executive is missing and almost all of the shares owned by its controlling shareholder has been pledged as collateral.

The demand for repayment from state-owned Bank of China could prompt other creditors to take similar action, bankers and analysts said.

Two people with knowledge of the matter said other creditors, which include HSBC, China CITIC Bank International and Hang Seng Bank, are now keeping a close watch on the situation. So far, none have taken action to recall their loans, the people said.

Huishan, which has been heavily dependent on short term loans, entered into the loan agreement with Bank of China’s Macau branch on April 28, 2014, with a maturity period of three years, according to official filings.

Bank of China did not immediately respond to requests for comment. Huishan declined to comment.

Last month, Huishan said Shanghai courts had ruled to freeze some of Huishan’s assets following an application by Gopher Asset Management Co Ltd, one of the company’s creditors.

Meng Shen, director of Chanson & Co, a boutique investment bank based in Beijing, said that if Huishan did not come up with a plan to restructure its debt, more lenders would seek legal action such as freezing Huishan assets.

“There is a distinct possibility that Huishan will not be able to restructure,” he said.

Huishan’s stock has been suspended at the company’s request since March 24, after it plunged 85 percent in a single day. On Monday, Hong Kong’s securities regulator also ordered trade in its shares be halted.

Hong Kong’s banking watchdog is separately questioning banks over a $200 million syndicated loan raised by Huishan from lenders including China CITIC, Hang Seng, and HSBC, sources told Reuters last month.

The banks sent a letter to Huishan in April stating that there had been “non-compliance with certain of the covenants” of the three-year loan agreed in 2015, although the letter did not necessarily mean that creditors were seeking accelerated repayment.

Representatives for HSBC, Hang Seng and China CITIC Bank declined to comment. (Reporting by Sumeet Chatterjee; Additional reporting by Michelle Price, Umesh Desai and Carol Zhong in Hong Kong and Adam Jourdan in Shanghai; Editing by Edwina Gibbs)

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