200 million US dollars outstanding, 7.2 billion funds are unknown: Huiyuan juice is "pursued" by overseas creditors

Tencent News "Periscope" special author Li Wei editor Yang Puding

In the past year, Huiyuan juice has once again been pinned on many expectations and praises. Hong Kong's delisting was at its bottom, but after the restructuring plan was approved, the new owners repainted a bright future for Huiyuan, including a re-listing.

And one of the overlooked facts is that some old debts are still unresolved.

In August 2023, a judgment from a New York court brought the issue to the surface. The judgment No. 656689/2021 was issued by the New York Supreme Court: the plaintiff was the hedge fund BFAM Partners, and the defendant was Huiyuan, a number of companies, for a senior debt issued in 2017. The New York Supreme Court's judgment upheld the plaintiffs' claim that Huiyuan should pay a total of $91.3 million in principal and interest.

On June 24, 2022, Beijing No. 1 Intermediate People's Court ruled to approve the reorganization plan of Beijing Huiyuan Food and Beverage Co., Ltd. Shanghai Wensheng Asset Management Co., Ltd., as a reorganization investor, plans to invest 1.6 billion yuan and become the controlling shareholder of Huiyuan. After the reorganization, Huiyuan holds the core trademark, brand and production assets of "Huiyuan Juice".

A year later, in China's judicial system, Beijing Huiyuan Food & Beverage Co., Ltd.'s reorganization plan had been executed, but BFAM, as a creditor of the former listed company, said it had "not been informed" of the reorganization process, accusing Huiyuan Holding of "completely ignoring the interests of overseas creditors in the outstanding notes".

In mid-November, John Han, a partner at Kobre & Kim, the plaintiff's BFAM lawyer, told Tencent News Periscope that foreign debt had not been taken into account in Huiyuan's restructuring, but that they had not lost their recourse rights as a result of the restructuring.

"The large number of unrecorded related transactions has taken away the economic value of the holding company and deprived foreign creditors of the right to lawfully recover their debts. Han Xing said at the same time.

Tencent News noted that while the overseas debts were not properly handled, the creditor China Huiyuan Juice Group Co., Ltd. (formerly listed on the Hong Kong Stock Exchange) had been identified by the Hong Kong Stock Exchange as having a large number of unrecorded related party transactions totaling more than 7.2 billion yuan, which were transferred from the listed company to other entities outside the group controlled or directly owned by Zhu Xinli, the former chairman of Huiyuan, and were subsequently written off.

An old account

The case was filed in the New York State Supreme Court on November 24, 2021 by Asian Opportunities Master Fund, a subsidiary of hedge fund BFAM.

Founded in 2012 by Benjamin Fuchs (formerly a trader at Lehman and Nomura), BFAM Partners is headquartered in Hong Kong and focuses on investing in the Chinese market, with a reputation for disposing of high-yield real estate debt and distressed equity assets.

On August 16 and September 14, 2017, Hong Kong-listed China Huiyuan Juice Group Co., Ltd. issued US$200 million 6.5% senior notes (senior notes), which Huiyuan is contractually to repay on or before August 16, 2020, with interest to be paid twice a year until maturity. Effective August 19, 2019, BFAM began to hold approximately 40.4% of these senior notes, or approximately $80.8 million in principal, with a total normal interest maturity of approximately $2.626 million.

But the troubled Huiyuan defaulted, and by the date of the New York court's judgment, the interest had reached about US$10.5 million, with a total of US$91.3 million (about 666 million yuan) in principal and interest.

The hedge fund BFAM recovered against Huiyuan and its subsidiary guarantors, including China Huiyuan Juice Group Co., Ltd., Huiyuan Beijing Holdings Limited, Huiyuan Shanghai Holdings Limited, Huiyuan Industrial Holdings Limited and Huiyuan Industrial Co., Ltd. BFAM demanded all cash from these companies and, in the event of a lack of cash, ownership of a number of subsidiaries. The New York judgment upheld BFAM's claim.

China Huiyuan Juice, which was previously listed in Hong Kong, was an investment holding company with subsidiaries engaged in the production of beverages, and its related parties "Beijing Huiyuan Juice" and "Beijing Huiyuan Beverage" were both investment holding companies and their respective subsidiaries were engaged in the manufacture of fruit juice concentrates and fruit pulps. Zhu Xinli is the majority shareholder of these companies. The delisting crisis of Huiyuan was triggered by one of its affiliated companies: the listed company provided loans of more than 4.2 billion yuan to related parties such as "Beijing Huiyuan Beverage", which led to the default of some financing notes and the inability to issue the 2017 annual report on time, and the trading was suspended until delisting.

At present, Beijing Huiyuan Holdings Co., Ltd. (established in 1992), which is 80% owned by Zhu Xinli, has a number of information on persons subject to execution, with a total amount of more than 3 billion yuan, and the equity of many companies held by it has also been frozen.

The restructuring has just been completed by Beijing Huiyuan Food and Beverage Co., Ltd., which was invested by Hebei Huiyuan Food and Beverage Co., Ltd., and the next level of investor is Huiyuan Beijing Holdings Co., Ltd. From the perspective of equity structure, this company has broken away from the old Huiyuan system, and the major shareholder is Zhuji Wenshenghui Own Capital Co., Ltd., holding 60% of the shares, which is a private non-performing asset management company.

In mid-November, the plaintiff's lawyer, John Han, a partner at Kobre & Kim, told Tencent News Periscope that the New York transfer order required Huiyuan Group's offshore entities (i.e., the holding company, its four BVI subsidiaries and one Hong Kong subsidiary) to hand over its assets, including cash and interests in the subsidiaries, to foreign creditors. The directors of these entities will be personally liable and may be considered a contempt of court for failing to comply with a surrender order.

This isn't the only lawsuit the hedge fund is ongoing. On April 20, 2023, another court document revealed that hedge fund BFAM and a number of other investors filed a lawsuit in New York against Chinese real estate developer Guorui Health (formerly known as Guorui Real Estate 2329.HK) to repay $201 million in debt. BFAM and a number of other international investors were owed a total of $141.4 million in principal, $9.4 million in premiums and $50.4 million in interest.

Guorui Real Estate used to be one of the top 100 real estate companies in the country, and its performance has taken a sharp turn in the three years from 2020 to 2022. The Company issued $334.8 million worth of offshore bonds in February 2022 at an annual interest rate of 14.25%. After one extension, the company still failed to redeem as agreed, and the creditor refused to extend the second time, and the bond defaulted. The lawsuit is still awaiting a judge's decision.

Two sources

In August 2017, when Huiyuan issued the above-mentioned senior notes, it was still surnamed "Zhu", and life was tight.

After missing out on Coca-Cola in 2009, Huiyuan's operation has gone through many detours, and the excessive upstream investment and chaotic sales system have overstretched the operation. In 2013, Huiyuan began selling its idle factories to use for working capital and debt repayment.

Huiyuan suffered a loss for the first time in 2014, with a loss of 127 million yuan. In fact, if you exclude government subsidies and income from the sale of assets, Huiyuan has been in a loss since 2011. In 2012, Zhu Xinli realized that it was time to slow down, and the group's capital expenditure was significantly reduced that year, and he also began to review the remaining land and start selling the land and facilities.

In 2014, Temasek Holdings, Singapore's sovereign wealth investment firm, backed Huiyuan by offering $150 million to buy Huiyuan's convertible bonds. Despite the 2019 maturity date of the convertible bonds, Temasek's dismal performance made Temasek impatient, and in March 2017, Temasek broke up with Huiyuan Juice ahead of schedule, dropping its stake from 8.23% to 0.

When the development trajectory was down, Huiyuan's internal capital problems were revealed.

From August 2017 to December 2017, without any approval from the directors and the board of directors, the Group's capital center transferred a total of RMB4.283 billion to 4 affiliated companies through 9 bank accounts of 4 group companies in 66 times. These loans were not even recorded on the Group's books until December 2017.

Although the principal and interest were paid off before March 29, 2018, the company's serious violations affected the release of the 2017 annual report, and it was downgraded by Moody's and removed from the list of Hong Kong Stock Connect targets by the Shenzhen Stock Exchange. The incident also led to a default on Huiyuan's bank financing and the convertible bonds it had issued.

Huiyuan Juice shares have been suspended from trading since April 3, 2018, and after being suspended for nearly three years, they were delisted from the Hong Kong Stock Exchange on January 18, 2021 and officially delisted. Zhu Xinli and other executives received a condemnation statement from the Hong Kong Stock Exchange.

Zhu Xinli, who originally held 65.03% of the shares of the listed company, resigned from his position as chairman of the board of directors in February 2020, nearly two years after the suspension of trading, along with his daughter Zhu Shengqin, and Ju Xinyan, a veteran employee of Huiyuan, who was the head of the drinking water division, was appointed chairman of the board.

When it was most stretched, Huiyuan paid off its debts with things. In 2019, a P2P platform factory microfinance announced that Yichun Yuanyuan Trading Co., Ltd., Yichun Huiyuan Ecological Breeding Co., Ltd., Hulin Huiyuan New Ecological Dairy Co., Ltd., and Hulin Huiyuan New Ecological Animal Husbandry Co., Ltd. were overdue for a total of 4 million yuan, and these four companies were all subsidiaries of Huiyuan. On the list of products that are used to settle debts, in addition to fruit juice series, there are also red wine, sea buckthorn, eucommia, snow chrysanthemum and other related products, and even fungus and rice, which are used to offset debts with agricultural products.

Huiyuan rescued: In April 2019, Huiyuan announced that it had entered into an investment cooperation framework agreement with Tiandi No. 1 Beverage Co., Ltd. and Guangzhou Hezhi Investment Management Co., Ltd., planning to jointly invest 6 billion yuan to establish a joint venture company. But this plan did not survive for 3 months, and the two sides announced that the cooperation had collapsed.

After all, Huiyuan failed to avoid liquidity risks, and debt risks broke out in an all-round way. Today's Huiyuan is owned by Wensheng Assets, a private non-performing asset management company.

Three-way competition

In 2019, Zhu Xinli was listed as a dishonest person subject to execution, and China Deyuan Capital (Hong Kong) Co., Ltd., as the authorized representative, was seized by the court, and 4.1 billion yuan of assets were frozen.

On December 29, 2020, the Beijing No. 1 Intermediate People's Court decided to initiate a pre-reorganization of Beijing Huiyuan and appointed a provisional administrator. On July 16, 2021, the creditor formally applied and the court ruled that Huiyuan entered into reorganization proceedings. At that time, the provisional administrator proposed that Huiyuan Company met the conditions for bankruptcy, but the company's industrial chain was complete, its production capacity was sufficient, and it had brand value, and many enterprises were willing to invest, believing that Huiyuan Company had reorganization value and reorganization feasibility.

As of July 16, 2021, the total assets of the parent company of Beijing Huiyuan Company were 1.093 billion yuan, the total liabilities were 12.467 billion yuan, the asset-liability ratio was 1140.99%, and the insolvent amount was 11.37 billion yuan.

After nearly a year, on June 24, 2022, the reorganization plan was approved by the Beijing No. 1 Intermediate People's Court. Wensheng Asset Management became the new controlling shareholder.

This case was selected as a "National Bankruptcy Classic Case" in 2022.

According to the documents, according to the type of creditor's rights, creditors are repaid in different ways: employee claims and tax claims are to be repaid in full in cash at one time; claims secured by property are to be repaid in full in the form of retained debts; small ordinary claims of less than 1 million yuan are to be repaid in cash at one time, and ordinary claims of more than 1 million yuan are to be repaid in full by way of debt-to-equity swap.

As a reorganization investor, Wensheng Asset Management promised to invest 1.6 billion yuan to become the controlling shareholder of Huiyuan, part of which was used to pay Huiyuan's bankruptcy expenses and repay small debts, and more than 90% of the funds were used to upgrade and strengthen Huiyuan's production and operation.

As of June 21, 2023, Wensheng Asset Management has invested 750 million yuan in Beijing Huiyuan Company, and according to the agreement, the remaining 380 million yuan and 470 million yuan will be completed by the end of 2024. Zhuji Wenshenghui Self-owned Capital Investment Co., Ltd., established by Wensheng Assets, holds 60% of the equity of Beijing Huiyuan, and Tianjin Wenshenghui Investment Management Partnership holds 10% of the reserved equity pool.

Wensheng Asset Management promised that Beijing Huiyuan's audited cumulative non-net profit deduction from 2023 to 2025 would not be less than 1.125 billion yuan, that is, the average annual non-net profit deduction would not be less than 375 million yuan, and designed a securitization plan for Huiyuan, striving to achieve A-share listing within three to five years, with the goal of bringing returns to creditors and investors.

Wensheng Assets matched the "old partners" Guozhong Water and Huiyuan Juice. In December 2022, Heilongjiang Guozhong Water Co., Ltd. announced that it planned to indirectly take over 18.89% of Beijing Huiyuan's shares at a price of 850 million yuan, and then successively increased the limit in three trading days. As a professional AMC company, Wensheng Asset Management usually withdraws from actual operation and gives way to a co-investor, that is, Guozhong Water, so the market is so excited.

After the rebirth, Ju Xinyan, chairman of Huiyuan Juice, disclosed new operating data at the dealer meeting: from January to February 2023, Beijing Huiyuan's sales volume was nearly 800 million yuan, a year-on-year increase of 20%, and the total profit was nearly 100 million yuan, a year-on-year increase of 86%, of which the 100% pure juice business increased by 52%; Choose to be listed on the main board of the Shanghai or Shenzhen Stock Exchange.

But what seems to be a bright future is a looming crisis: the $200 million senior bond issued in 2017 was once shelved, and now the time has come to solve it.

Pending

With the Beijing Intermediate People's Court's ruling on the completion of the reorganization plan on the one hand, and the New York High Court's ruling in favor of the debt claim, hedge fund BFAM Partners is in a delicate position.

In accordance with the five implementation requirements specified in the reorganization plan, the reorganization plan of Beijing Huiyuan Company has been implemented. 

What will the overseas creditors do next? Will Zhu Xinli personally be pursued by overseas creditors, including BFAM? Han Xing, the lawyer representing the plaintiff, said that the overseas creditors will actively pursue their interests under the New York judgment against the holding company and related parties, including personal liability for violating the New York transfer order, and individuals involved in the relevant transactions that led to the transfer of the assets of the holding company will also be held personally liable.

In addition to the $4.282 billion of unrecorded loans that directly triggered the suspension and delisting of Huiyuan's Hong Kong-listed companies, HKEX also found in a subsequent independent investigation that Zhu Xinli approved the transfer of about $1.7 billion to the borrower in July 2018 for further connected transactions without notifying the board. Unlike the repayment of the 4.282 billion loan, the transfer of 1.7 billion yuan has no follow-up results.

In addition, the Exchange's investigation further found that the listed company and Huiyuan Food made a total of 156 payments (totaling approximately RMB7.2 billion) to three affiliated companies (Beijing Huiyuan Beverage, Beijing Junliu and China Huiyuan Juice), but these payments were not recorded in the group's accounting records. During the same period, Huiyuan Food received a total of 164 payments (totaling approximately RMB7.2 billion) from three affiliated companies (Beijing Huiyuan Beverage, Beijing Junliu and China Huiyuan Juice), and these receipts were not recorded in the Group's accounting records.

According to the investigation report, from January to December 2017, all unrecorded payments of the Group have been offset by the Group's unrecorded revenue for the relevant period.

Tencent News "Periscope" inquired that after penetration, the major shareholder of Beijing Huiyuan Beverage is Zhu Xinli.

The Hong Kong Stock Exchange earlier reprimanded the holding company and its directors, including Zhu Xinli's father and daughter, and Han Xing, on behalf of BFAM, pointed out that the large number of unrecorded related transactions took away the economic value of the holding company and deprived foreign creditors of the right to legally recover their debts. If such transactions are entered into without good consideration, they may be put on hold. In such circumstances, the foreign creditor may request Beijing Huiyuan to recover its debts.

From the BFAM side, Huiyuan's directors should also be held accountable: "Since the holding company was insolvent or on the verge of bankruptcy at the time of the judgment, the directors of the holding company (some of whom were also directors of Beijing Huiyuan) owed fiduciary duties to creditors, including foreign creditors. The creditors argued that the directors of Huiyuan had breached these fiduciary duties by failing to safeguard their interests in the restructuring. ”

As of press time, Tencent News "Periscope" has not contacted relevant people in Huiyuan to respond to this incident.

2022 marks the 30th anniversary of Huiyuan's founding, and the first half of this journey is inspirational and the second half is depressing. In the 31st year, while encountering "pouring wealth" as a national brand, and on the other hand, the heavy debt problem was exposed and unsolvable, and the script of Huiyuan's comeback was more complex and involuntary than expected.