(Yicai Global) Aug. 19 -- Shares in Henan Kedi Dairy opened down by the daily limit this morning after it revealed that it was under investigation by the China Securities Regulatory Commission.

Its stock [SHE:002770] started down 9.9 percent at CNY2.47 (35 US cents) but had clawed back to CNY2.65, a 3.3 percent drop, at the lunch break.

Kedi announced the probe but did not go into details on the reason behind it in a statement on Aug. 16. The issue may relate to its supposed inability to pay creditors despite having CNY1.8 billion (USD241 million) in cash at the end of the first quarter, according to its financial report for the period.

The company claims it needs that cash to expand its capacity, including building dairy production lines with combined annual capacity of 600,000 tons with its subsidiary Luoyang Ju'er Dairy Industry.

More than 200 dairy farmers and raw milk suppliers gathered at Kedi's headquarters on July 31, demanding it return about CNY140 million (USD20 million) worth of raw milk which it should have paid for 19 months ago, according to a China Business Journal report that said the chairman's daughter Zhang Shaohua has admitted Kedi's parent company is under significant financial pressure.

A court in Shandong province has already frozen assets belonging to its parent company Kedi Group. The People's Court of Cao County locked up a total CNY31 million worth of stock in Henan Kedi Frozen Food on Aug. 16 for three years, according to corporate data platform Qixinbao.

Editor: James Boynton