China Huishan Dairy shares plummet 85 pct, trade halted

* Chairman tells website short-seller behind share fall

* Huishan Dairy (HKSE: 6863-OL.HK - news) met creditor banks on Thursday - report

* Company to make announcement after enquiries (Adds Muddy Waters comment, HKEX (HKSE: 0388-OL.HK - news) comment)

By Donny Kwok and Elzio Barreto

HONG KONG, March 24 (Reuters) - Shares (Berlin: DI6.BE - news) in China Huishan Dairy Holdings plunged 85 percent on Friday, wiping off about $4 billion from its market value before trading was halted in its second suspension in three months.

It was not immediately clear what triggered the slide.

News website Barron's Asia quoted Huishan Dairy Chairman Yang Kai as saying the share fall was the result of a short seller attack. The firm has previously come under attack from U.S.-based short-seller Muddy Waters.

Business publication Caixin reported on Friday that the government of Liaoning, where Huishan Dairy is based, met 23 of the firm's creditor banks a day earlier, including HSBC , Bank of China (HKSE: 3988-OL.HK - news) and Industrial and Commercial Bank of China (ICBC (HKSE: 1398-OL.HK - news) ) .

The three banks did not immediately respond to requests for comment while calls to the Liaoning government financial work office went unanswered.

In December, Muddy Waters questioned the firm's profits and said it had inflated spending on its cattle farms to artificially raise capital expenditure figures - an attack that also led to a trading suspension.

Muddy Waters said at the time it believed the Chinese dairy firm to be worth "close to zero" because it had misrepresented its self-sufficiency in alfalfa used as feed for cattle, was over-leveraged and had overstated its spending.

"It was somewhat surprising it took this long from our report for the stock to break; but, given that it's a fraud and likely a manipulation, this ultimate outcome was clear to us," Muddy Waters founder Carson Block said in an email.

He did not comment further.

Huishan Dairy has said the allegations are groundless. On Friday it said it would issue an announcement as soon as practicable after completing enquiries.

UNUSUAL COW LEASING DEAL

Huishan Dairy, which operates 82 farms in Liaoning province, went public in 2013 in a $1.3 billion initial public offering, with global investment banks Deutsche Bank (IOB: 0H7D.IL - news) , Goldman Sachs (NYSE: GS-PB - news) , HSBC and UBS (LSE: 0QNR.L - news) acting as sponsors of the listing.

In an unusual deal last April, it sold 50,000 dairy cows to Guangdong Yuexin for 1 billion yuan ($145 million) after which the buyer leased back the cattle to the company.

Huge paper losses could spell pain for Ping An Bank, a unit of Ping An Insurance Group Co of China Ltd. Huishan Dairy's controlling shareholder, a company controlled by Chairman Yang, secured a loan with the bank worth HK$2.14 billion in late 2016 backed by Huishan Dairy's shares, filings show.

Ping An Bank said in an emailed statement it did not directly own any shares and that it was seeking more information about Huishan Dairy's situation.

Trading volume in Huishan Dairy shares soared to 779 million shares on Friday, the highest level since its debut, with the bulk of the sell-off occurring in the last 20 minutes of trade before midday.

The shares fell as low as HK$0.25 before edging back up to HK$0.42 when the trade was halted.

($1 = 7.7665 Hong Kong dollars) ($1 = 6.8932 Chinese yuan renminbi) (Additional reporting by Saikat Chatterjee, Clare Jim and Umesh Desai in Hong Kong, Engen Tham in Shanghai and Shu Zhang in Beijing; Writing by Anne Marie Roantree; Editing by Edwina Gibbs and Edmund Blair)