Chuying Agro-Pastoral Group Co. Ltd. (002477.CN) warned of an estimated full-year loss of 3.3 billion yuan (US$489.69 million) after a large number of its pigs starved to death because it did not have cash to buy enough feed on time.
The Zhengzhou-based company, which breeds livestock and poultry, had a profit of 45 million yuan last year.
“The nation’s deleveraging move has tightened our financing channels and led to a credit crunch,” it said. “We were unable to buy feed on time, which led to higher pig death rate than expected. Also, the price of pork was lower than expected because of the African swine fever in the fourth quarter.”
While that might be part of the reason, the company also blamed goodwill and asset impairment for the dismal results. This, I suspect, might actually be the main problem.
Chuying has a rather notorious reputation. The company grabbed headlines in November last year when it offered to repay holders of 271 million yuan of its debt with ham or pork gift packages instead of interest payments.
Chuying is but one of about 120 firms that have sounded alarm bells since a new chairman was appointed to the China Securities Regulatory Commission. Many of these cases involved goodwill write-offs.
It is believed that many Chinese firms have aggressively pursued merger and acquisition deals, paying huge premiums and inflating their book value. This could explain the widespread use of impairment charges.
It looks like this will be the first test for the new CSRC chairman, Yi Huiman. The regulator has issued inquiry letters to Chuying and other companies predicting huge losses, asking them to explain in detail the reasons behind their profit warnings.
This article appeared in the Hong Kong Economic Journal on Feb 1
Translation by Julie Zhu
[Chinese version 中文版]
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