HONG KONG, March 25 (Reuters) - China’s Labixiaoxin Snacks Group Ltd will hold a call on Wednesday in a bid to reassure lenders after the company’s shares were suspended on the Hong Kong exchange on Monday after the company postponed its annual results.
Labixiaoxin, the second-largest manufacturer of jelly products in China, runs the risk of breaking a covenant on an existing $75 million loan if the shares are suspended for more than 15 days, lenders said.
The company had already held two lender calls in response to press reports before its shares were suspended on Monday.
Labixiaoxin’s problems highlight the growing risks of lending to Chinese midcap privately-owned companies. More Chinese privately-owned companies have been raising offshore loans, despite recent defaults on bonds and local renminbi debt.
In 2013, privately owned firms in China raised $27.6 billion from offshore loans, far outstripping the combined $21 billion figure in the previous four years, according to LPC data.
“We will definitely be more selective on lending to small- to medium-sized Chinese private companies in the future,” said another lender.
Labixiaoxin’s Chief Financial Officer Sam Yap will update investors on Wednesday’s call, sources said. Lenders are anxious to know when the company’s annual results will be released.
Labixiaoxin has yet to announce a release date for its 2013 full-year financial results. The company’s financial statements have been audited by PricewaterhouseCoopers since 2003.
“It is good in a way that now the auditor will have to check very carefully before releasing the annual results of the company,” one of the lenders said.
Some lenders said that on the positive side, the company’s leverage is low and it was in a net cash position as at June 2013.
Labixiaoxin’s first lender call on March 13 addressed a press report that the company may have overstated its sales and that its margins were higher than its peers.
The company denied the report and said that it might increase its dividend payment, which pays at least 20 percent of net profit every year, to regain investors’ confidence.
A second call on March 17 dealt with another media report alleging that one of Labixiaoxin’s suppliers is producing toxic gelatine which is used in gummy candy products.
Labixiaoxin’s existing $75 million, three-year amortising debut loan was signed in January 2013 and was arranged by Deutsche Bank, China Development Industrial Bank, Citic Bank International and Taishin International Bank. (Editing by Tessa Walsh)