SHANGHAI, Dec 16 (Reuters) - China Huishan Dairy suspended trading on Friday after a report from U.S.-based short-seller Muddy Waters questioned the firm's profits and said it had inflated spending on its cattle farms to artificially raise capital expenditure figures.
Shares in Huishan Dairy - which carried out a $1.3 billion listing in Hong Kong in 2013 - were suspended down 2.14 percent on Friday morning. The shares recouped some losses in morning trade after having dropped as much as 4.3 percent to their lowest in more than a year.
Muddy Waters said it believed the Chinese dairy to be worth "close to zero" because it had misrepresented its self-sufficiency on alfalfa used as feed for cattle, was over-leveraged and had overstated its spending.
An official in Huishan Dairy's investor relations department said the firm was now going through the report and would later publish a response. He added the firm had seen a build-up of short positions in the last few weeks.
The official, who asked not to be named, said this was common practice for groups such as Muddy Waters.
"In the run-up, you get lots of related groups building up short-positions, then suddenly they'll write their own report, something baseless, and get the stock price to fall," he said.
Huishan Dairy posted revenues of 4.5 billion yuan ($647.9 million) in the year to end-March 2016, up 15 percent from the same period in 2015.
$1 = 6.9460 Chinese yuan Reporting by Adam Jourdan; Editing by Jacqueline Wong