How things soured for Huishan Dairy

There was no shortage of buyers when Huishan Dairy raised $1.3 billion in a 2013 listing in Hong Kong. The IPO was multiple times oversubscribed, in part due to a halo effect from Cheng Yu-tung, an existing shareholder and a Hong Kong property tycoon. 

During the public offering marketing, its chairman Yang Kai vowed to build China’s most trusted dairy brand after a 2008 baby formula scandal in China raised public fears over the safety of dairy products.

But things soured for investors when Huishan Dairy’s Hong Kong-listed shares plunged 85% in an hour on March 24, before being suspended. On May 8, the Securities and...