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China milk scandal firm submits bankruptcy application
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20:13, December 25, 2008

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A Chinese court has accepted a bankruptcy petition for Sanlu Group which was at the center of a tainted milk scandal and is facing huge debts, an official said Thursday.

Wang Jianguo, spokesman for the city government of Hebei provincial capital Shijiazhuang, said that the Intermediate People's Court of Shijiazhuang City has accepted the petition of clearing made by the Hepingxi Road branch of Shijiazhuang City Commercial Bank - a creditor of Sanlu.

Sanlu Group now faced 1.1 billion yuan (160 million U.S. dollars) of net debts, Wang said at a press conference.

The court's order was passed on to Sanlu Tuesday.

As of Oct. 31, financial auditing and assets appraisal showed the group's total assets were worth 1.56 billion yuan while its total debts were 1.76 billion yuan, the spokesman said.

On Dec. 19, Sanlu Group borrowed 902 million yuan to pay the medical fees of children sickened by its melamine-tainted baby formula and to compensate the victims.

Sanlu products were found to contain melamine, which was being used to increase the apparent protein content in milk. The use of the industrial chemical is restricted in food.

Children can develop kidney stones after drinking such milk.

The scandal surfaced in September. Some other dairies' products were also found to contain the chemical. The Ministry of Health has said it was likely the contamination killed six babies. Another 294,000 infants suffered from urinary problems such as kidney stones.

Sanlu stopped production on Sept. 12. As of Oct. 31, the group recalled more than 10,000 tonnes of baby formula products worth nearly one billion yuan.

In the past few days, several hundred salespeople had come to Shijiazhuang to ask for the money Sanlu owed them after word of the company's bankruptcy spread.

The group raised 300 million yuan in October and paid each of the agents 30 percent of the money owed to them, according to Wang.

Wang said another 30 percent would be paid Jan. 10.

A spokeswoman for Sanyuan, a potential buyer of Sanlu, said her company had been negotiating the acquisition of Sanlu.

"Adjustments to our plans won't be decided until the board of directors meet," said Wang Qian, secretary of the board of directors for Sanyuan company based in Beijing, in an interview with Xinhua Thursday.

As one of the earlier buyers showing interest in buying Sanlu, Sanyuan, a listed company, has made its intent known to the public. Its shares have therefore been pulled from trading.

Industry observers say if Sanlu is allowed to claim bankruptcy, Sanyuan will be well-poised to acquire the company.

Wang Qian explained she received the Shijiazhuang court's decision Thursday and had prepared a new announcement accordingly.

She declined to disclose the contents of the announcement, saying both the court's order and the company's announcement were submitted to the Shanghai Stock Exchange for further examination.

"If the two documents were adopted Thursday, the public will be informed of Sanyuan's announcement and will know our company's attitude toward the bankruptcy petition toward Sanlu," the spokeswoman said.

Source: Xinhua

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