(Yicai Global) Nov. 12 -- A unit of Chinese conglomerate Yuexiu Group has stepped in to save floundering China Huishan Dairy Holdings with a CNY3 billion (USD453.3 million) cash injection, bringing to an end several years of litigation and turmoil for the milk producer.

Guangzhou Yuexiu Fengxing Food Group will pay CNY2 billion for a 67 percent stake in a new firm that will be set up to control Huishan’s assets, the parent company said yesterday. The remaining 33 percent will be held by creditors in the form of CNY985 million of convertible bonds.

Yuexie Fengxing will also stump up a further CNY1 billion to pay off some of the Shenyang, northeastern Liaoning province-based dairy firm’s mountain of debts. The restructuring plan has been met with approval by the majority of Huishan’s creditors and has been greenlit by the Shenyang Intermediate People’s Court.

The acquisition will give Yuexiu Fengxing a plentiful source of raw milk in northeastern China, a region that it does not yet cover. At the moment the Guangzhou-based company supplies southern China with fresh milk through its subsidiary Guangzhou Fengxing Milk and northern China, including Beijing and Tianjin, through its Great Wall Dairy of Zhangjiakou.

The financial woes of Huishan, which runs a 33,000 hectare dairy farm with 200,000 imported cows, were first exposed in December 2016 when US short seller Muddy Waters denounced it as a fraud with zero value and accused it of exaggerating the value of its assets. Huishan hit back at the time, saying the accusations were groundless.

Then its shares collapsed 90 percent on March 24, 2017, the biggest decline in the history of the Hong Kong stock exchange, wiping HKD32 billion (USD4.1 billion) off its market value. This stock-price avalanche laid bare the company's debt catastrophe implicating tens of billions of dollars in financial claims and more than 70 creditors, including 23 banks, over 10 financial leasing companies and some peer-to-peer and private equity firms.

It had no choice but to file for bankruptcy in December 2017 and was booted from the Hong Kong bourse last year.

Yuexiu Group, which has interests in the financial, real estate, transportation infrastructure and urban agriculture industries, is controlled by the Guangzhou State-owned Assets Supervision and Administration Commission. The Hong Kong-based firm had an operating revenue of CNY64.8 billion (USD9.8 billion) last year and assets of CNY670 billion (USD101 billion). Yesterday it also signed a deal with the city of Shenyang to co-operate in the areas of fresh food, financial services and general development.

Editor: Kim Taylor