Chairman cashes out 1.643 billion yuan to repay debt, exposing Yili's operational hidden risks

This article is reprinted from Jiangsu Economic Daily

□ Jiangsu Economic Reporter Jin Cai

Recently, Yili Group issued the “Announcement on the Results of Share Reduction by Directors and Senior Management,” stating that it received a “Share Reduction Result Notice” from Chairman and CEO Pan Gang. He reduced 61.99 million shares through centralized bidding, accounting for 0.98% of the company’s total share capital, with a total reduction amount of 1.643 billion yuan. The share reduction plan disclosed on January 8 has now been completed.

Pan Gang’s share reduction not only set a new record for senior management share reductions in the A-share food and beverage sector but also, amid weak recovery in dairy consumption and pressure on company performance, pushed Yili Group into the spotlight of public opinion. Both announcements repeatedly emphasize that “Mr. Pan Gang is full of firm confidence in the company’s future development,” but this has failed to reassure investors. Since January 8, the stock price has continued to decline. Market concerns are heightened by the possibility that if Yili’s stock price continues to fall, more executives may need to “cash out to pay debts.”

Used to repay stock pledge financing loans

The announcement shows that the funds from Pan Gang’s share reduction will be used to repay maturing loans from financial institutions such as Huatai Securities (Shanghai) Asset Management Co., Ltd., obtained through stock pledge financing for subscribing to equity incentives and purchasing stocks on the secondary market at market prices. All proceeds from the share reduction will be used solely to repay stock pledge financing loans, which are not for personal use or any other individual expenses.

Pan Gang has been leading Yili Group for 24 years, receiving substantial compensation. Data from the annual report shows that over the past five years, Pan Gang has received more than 110 million yuan in salary from Yili, along with dividends exceeding 1.4 billion yuan. Given such high income, why did he choose to reduce shares to pay off debts? Is there a conflict between personal financial pressure and cash flow management?

Analysts believe that Pan Gang’s share reduction plan is not an isolated event but part of a complex capital operation chain.

Since 2013, Pan Gang has received a total of 240 million shares through three stock incentive programs, at a cost of only 6.49 yuan per share, far below the current market price. During the acquisition of these shares, Pan Gang used stock pledge financing to pay part of the subscription costs, forming a cycle of “stock incentive—pledge financing—additional shareholding.” The third quarter of 2025 shows that out of the 287 million shares Pan Gang holds, 199 million are pledged, with a pledge ratio of 69.42%.

This “loan-to-buy-a-house” style shareholding approach has a key issue: it heavily depends on Yili’s stock price and dividends to cover the interest on pledged loans. However, Yili’s stock price has been declining in recent years, dropping from a peak of 46 yuan per share to 28 yuan at the time of the announcement. The pledge risk for Pan Gang has increased accordingly, and this share reduction is likely a defensive move to “de-leverage proactively.”

After this reduction, Pan Gang still holds 225 million shares, accounting for 3.55% of the company’s total share capital, ranking third among the top ten shareholders. Considering that this is Pan Gang’s first reduction since taking control of the company, the statement that “Mr. Pan Gang is full of firm confidence in the company’s future development” may not be just reassuring rhetoric.

Completed 28 days ahead of schedule

Regarding the impact of the reduction, Yili Group reminded that during the reduction period, Pan Gang will decide whether and how to implement the share reduction plan based on his own financial arrangements, the company’s stock price, and market conditions. The timing, quantity, and price of the reduction are uncertain. Investors are advised to be aware of investment risks.

The plan caused significant market reaction. On January 8, the day it was announced, Yili’s stock price plummeted by 4.08%. As of the close on March 23, Yili’s stock price was 25.49 yuan per share, down approximately 11.03% from before the announcement. Some investors questioned on trading platforms, saying “they treat the company as a ‘milk cow’” and “the chairman sold at the high point, what about retail investors?” Others argued that “this is a compliant operation.”

Interestingly, the original plan was to complete the reduction between January 29 and April 14, but it was actually completed before March 17, 28 days earlier than scheduled. Analysts believe that completing the reduction early benefits market confidence. On one hand, after the reduction, the apparent selling pressure disappears, and the stock price may recover in the short term; on the other hand, it indicates that the company’s equity is viewed positively by outsiders, with no shortage of “buying interests,” and the company’s shareholding structure will become more stable after the reduction.

A more practical reason is that Yili will release its 2025 annual report at the end of April, entering a roughly 30-day “annual report silence period,” during which the company cannot disclose material information related to stock trading to prevent insider trading. This buffer period also helps avoid potential negative effects from poor annual performance and high-level share reductions, which could impact the stock price.

According to the third quarter of 2025, Yili’s performance faces pressure, with net profit attributable to the parent decreasing by 4.07% year-on-year in the first three quarters of last year, marking seven consecutive quarters of decline. To achieve the previously set annual target of 119 billion yuan in total revenue and 12.6 billion yuan in profit, the company needs a significant rebound in the fourth quarter.

Potential chain reaction of pledge defaults

Looking at the shareholding structure, among the top ten shareholders, Hohhot Investment and Zhao Chengxia also have high pledge ratios. The third quarter of 2025 shows that Hohhot Investment’s pledge ratio is 34.69%, and Zhao Chengxia’s is 66.40%, with the latter facing significant leverage pressure. If stock prices continue to fall, there is a risk of chain pledge defaults.

In addition to stock price risks, whether Yili’s past high dividend payout model can continue is also a concern. From 2022 to 2024, Yili’s dividend payout ratio exceeded 70% each year, with 2024’s dividends reaching 7.717 billion yuan, nearly 92% payout ratio. In November last year, Yili approved its “Shareholder Return Plan for the Next Three Years (2025–2027),” which stipulates that the annual cash dividend should not be less than 75% of net profit attributable to the parent.

However, with increasing performance pressure, Yili’s asset-liability ratio has risen for three consecutive years, from 58.66% at the end of 2022 to 62.91% at the end of 2024. More critically, by the end of the third quarter of 2025, Yili’s cash balance was 13.827 billion yuan, a sharp decrease of 45.57% from 25.404 billion yuan at the end of 2024, while short-term borrowings increased from 36.355 billion yuan to 45.185 billion yuan. This means that Yili’s current cash holdings are insufficient to cover even one-third of its short-term debt, relying instead on refinancing or new debt to service old debt.

In previous investor days, Pan Gang stated that China’s dairy industry is at a critical turning point, shifting from a period of “quantity growth” focused on speed to a new stage of “quality improvement” driven by diversified and refined demands. “Structural growth” is replacing “universal growth.”

For Yili, during this industry transformation, investors need more than short-term performance commitments; they require management’s firm execution of long-term strategies and transparent communication. Analysts believe that this share reduction event exposes a mismatch between Yili’s equity incentive plans and senior management’s financial needs. Going forward, the company may need to optimize incentive schemes, such as extending lock-up periods or introducing performance-based clauses, to boost market confidence.