March 22, 2011

The scandal in which an illegal additive was found in some of Shineway Group's pork products is likely to sink the company's reorganisation plan, sources said.

According to the group's reorganisation plan announced in November, the parent company will inject RMB33.94 billion (US$5.16 billion) worth of assets into the listed subsidiary, including all the group's assets relating to the business of pig purchase, slaughter, meat processing and product sales.

The reorganisation means affiliate Jiyuan Shineway Food Co, at the centre of the scandal, could be part of the listed firm seeking public funds if it is included in the plan. But an ongoing investigation initiated by local governments and the Ministry of Commerce could delay or possibly scupper the whole plan if the probe expands to other food subsidiaries under the Shineway Group, China's largest meat processor, analysts said.

The suspension in the trading of shares of the group's Shenzhen-listed subsidiary Henan Shineway Investment and Development Co has also caused hefty losses for many mutual funds. On Tuesday alone, 56 mutual funds that have been buying the stock since the fourth quarter of last year suffered a combined loss of nearly RMB1.27 billion (US$0.19 billion), according to reports. There is no news on when trading in Henan Shineway will resume, the reports said.