HONG KONG (Reuters) – The chairman of Chinese dairy group Hunan Taizinai, which counts Goldman Sachs (GS.N) and Morgan Stanley (MS.N) among its investors, is set to oppose the struggling company’s liquidation, a source said, complicating the recovery of about $440 million in debt it owes creditors.
“Taizinai’s chairman is expected to resist the liquidation proposal, because he wants to get his business back,” the source, who had direct knowledge of the matter, said on Wednesday. The source was referring to Li Tuchun, Taizinai’s chairman.
Morgan Stanley, Goldman and private equity firm Actis Capital had paid $73 million for an over 30 percent stake in Cayman Islands-registered Taizinai in 2007, with Morgan Stanley providing $18 million, Goldman $15 million and Actis Capital $40 million, sources told Reuters last week.
Citigroup (C.N) is Taizinai’s biggest lender, while the company also owed money to Singapore’s DBS (DBSM.SI) and other banks, the sources had said.
The dairy products maker could have 3 billion yuan ($440 million) in unpaid debt, the sources had said.
Efforts to reach Li were unsuccessful. The company’s main listed phone number went unanswered on Wednesday. Zhuzhou Gaoke, the government company running Taizinai, was not available for comment.
Taizinai is opposing an effort by a Cayman Islands court to go through a formal liquidation process.
Liquidators are currently trying to carve out a framework agreement with the Hunan provincial government in China and Taizinai’s creditors to push ahead with the liquidation plans, the source said. The Hunan government took over management of the company in late 2008 when Taizinai suffered a major blow to its business.
The Grand Court of the Cayman Islands appointed Hong Kong accountant Borrelli Walsh as provisional liquidator of the once rapidly expanding dairy company.
“I think Taizinai has to get its business back in the market, identify investors and push forward an acceptable solution for the local government and creditors right now,” the source said.
Once an IPO candidate, Taizinai, best known for its probiotic yoghurt drinks, expanded quickly, but was hit hard by China’s tainted-milk scandal, which hurt dairy sales across the country. Hunan-based Taizinai did not sell any contaminated products, but was hit by the industry downturn, one of the sources had said.
With the tainted-milk scandal and the over-expansion of its business, Taizinai was struggling, prompting the Hunan provincial government to take over the company in December 2008, a source had said. (Editing by Michael Flaherty and Muralikumar Anantharaman)
peHUB Note: Other Hunan Taizinai investors include Actis Capital