Ping An Bank Co. Ltd. could see a hit to profit from its exposure to China Huishan Dairy Holdings Co. Ltd., which saw its stock plunge nearly 90% on March 24.
The lender said in a March 27 filing that it made a HK$2.14 billion loan to China Huishan Dairy's controlling shareholder, Champ Harvest Ltd., using about 25% of the dairy company's shares as collateral.
If Ping An Bank were to write off the entire loan, its pretax profits could fall by 2% in 2017, The Wall Street Journal reported March 27, citing estimates from Daiwa Capital Markets. The bank said it is working with other parties and Beijing to resolve the matter.
China Huishan Dairy confirmed in a March 28 disclosure to the Hong Kong stock exchange that it had been unable to make interest payments and had met with 23 creditor banks March 23 to set out a plan to remedy its overdue interest payments in two weeks.
The company's chairman, Yang Kai, had discovered March 21 that it had been late in some bank payments. China Huishan Dairy also noted market rumors that Yang had misappropriated 3 billion Chinese yuan of funds, and stated that it does not believe that there has been any misappropriation by its chairman. Yang has also denied the charges.
Bank of China Ltd. also confirmed that it has not conducted any audit of the group, as reported by media, according to China Huishan Dairy's statement.
The dairy company also said it had lost contact with one of its executive directors, Ge Kun, who is principally responsible for the group's sales and branding.
Ping An Bank is a unit of Ping An Insurance (Group) Co. of China Ltd.
As of March 27, US$1 was equivalent to 6.88 Chinese yuan.