Dairy producer confirms chairman, CFO detained
By Dai Yan (China Daily)
Updated: 2004-12-22 11:27

Three senior executives at Yili Corp, one of China's biggest dairy groups, have been detained, the company confirmed yesterday.

"We received formal notice from the police that three senior officials have been detained," said a spokesman from the dairy company based in northern China's Inner Mongolia Autonomous Region.

The spokesman, who declined to be named, identified the three officials as Zheng Junhuai, Yili's chairman; Zhang Xianzhu, its board secretary and chief financial officer and Li Yongping, head of Yili's securities department. However, the spokesman refused to provide reasons for the detainment.

Reports said on Monday up to seven Yili executives were detained on suspicion of embezzlement and other economic crimes late last week. The spokesman declined to comment on the report.

Yili is set to hold an emergency meeting on the case and talk about the management arrangement, the spokesman said. Company operation will not be affected as vice-chairman Yang Gui temporarily replaces Zheng and all departments run normally, the spokesman said.

"We have not seen signs that sales have been impacted," he said.

Yili's shares were suspended from trading on the Shanghai Stock Exchange on Monday shortly after opening. The suspension continued yesterday pending an announcement by the company. Its shares halted trading after falling by the daily limit of 10 per cent on Monday. Yili shares last traded at 9.77 yuan (US$1.18).

Reports said the government of Hohhot, capital of Inner Mongolia Autonomous Region, where the company is based, sent a senior official to the company. But the spokesman did not confirm the visit.

Yili Group is one of 520 key industrial enterprises and one of the 151 leading industrial enterprises in China's agricultural sector. It produces 39 products including milk, yogurt, milk powder, and ice cream. The group went public in 1996. Yili has registered sales of 10 billion yuan (US$1.2 billion) so far this year, compared to 6.3 billion yuan (US$761 million) in 2003.

Reports said prosecutors began investigating accounts at Yili following announcements last summer that the company had lost millions of yuan in bond dealings.

Yili received a notice from a securities regulator in July of an investigation into alleged securities irregularities. Heavy losses in bond investments also triggered a crisis of an independent director resignation in August.

Analysts believe the Yili case will have some impact on the market, though the Composite Index remained calm yesterday after losing more than 1 per cent on Monday.

Zhu Weihua, an analyst from the Merchant Securities said Yili, regarded as a bluechip stock, is heavily invested by institutional investors including securities investment funds.

"As a result, the Yili scandal will have a substantial psychological impact on stock investors, as some investors may doubt the performance of other bluechips," she said.

However, she said she believes the company will not suffer from the scandal for long after a management reshuffle since it has displayed good business performance. According to financial data released by the group, Yili has far outperformed the industry average and other listed Chinese dairy producers.

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