First, Muddy Water questioned the existence of financial fraud and profit fraud. Muddy Water Company said in the report that it had lied about its profits at least from 20 14, mainly about its self-sufficiency in alfalfa feed. Huishan once said that self-sufficiency in alfalfa production is the main driving force for its industry to lead the gross profit; However, Muddy Water has found a lot of evidence that Huishan has bought a lot of alfalfa from a third party for a long time, and the price is higher than its claimed self-production cost.
Secondly, Muddy Water questioned that Yang Kai, the chairman of the board of directors of the company, was suspected of misappropriating the company's assets and stealing at least 654.38 yuan+50 million yuan from Huishan. The agency said that the actual amount involved may be higher. Muddy Water found that a subsidiary with at least four dairy farms was transferred to an undisclosed related party without notice, and Yang Kai was the actual controller of the subsidiary.
Thirdly, muddy water questioned that Huishan's excessive leverage had made Huishan on the verge of default, and the equity value was close to zero. "Even assuming that Huishan's finances are not fraudulent, the company seems to be on the verge of debt default because of its excessive leverage ratio." Muddy water pointed out in the report that its credit risk is extremely high and its leverage is huge.