Troubled dairy company Bellamy's has stumbled early in its recovery journey after Chinese authorities suspended the export licence of the canning facility the company has just acquired.
Bellamy's has only just completed a capital raising partly to fund the $28.5 million acquisition of the Camperdown facility with one of the key selling points being the fact it holds a so-called CNCA licence to sell product in China.
But the infant formula company went into a trading halt on Friday as that license was suspended by Chinese authorities on Thursday night.
The suspension came as a shock and generated a flurry of activity as the company and Australian trade officials investigated what happened. But by the close of the Australian market on Friday, clear answers had not emerged.
Last month Bellamy's announced the deal to buy the factory, and said it had plans for $8.5 million of spending that would upgrade the facility and increase the volume of production. The factory will be used to produce Chinese labelled infant and toddler formula for the China market.
Late on Friday afternoon Bellamy's issued a statement to the ASX stressing that licence had been suspended not cancelled.
"We are working with Australian trade officials and channel partners to understand the reasons behind the suspension. Importantly, the suspension does not impact the sale of the company's organic baby and toddler formula products, which are currently manufactured by Fonterra and Tatura Milk [Bega] under their respective CNCA licences," the statement said.
Citi analysts reacted to the news by downgrading the stock to "sell".
In a report titled Can't catch a break. Downgrade to Sell, Citi analyst Sam Teeger said the licence suspension was "another challenge which needs to be resolved along with escalating organic supply costs, excess inventory and reliance on the daigou".
Mr Teeger said Bellamy's was rated as "high risk", reflecting "uncertainty around the success and timing of the turnaround strategy".
But Mr Teeger, said it did not expect the suspension would break Bellamy's business model.
"We view the suspension of Camperdown's CNCA license to be a frustrating setback for Bellamy's, particularly since the $28.5 million Camperdown acquisition only closed three days ago," it said.
Bellamy's products bound for China aren't planned to come from the Camperdown factory until the second half of 2018.
It is unknown how long the suspension will last.
The suspension of the export licence comes less than four weeks after Bellamy's announced a deal to buy the Camperdown plant, in the Melbourne suburb of Braeside. In a statement to the ASX, Bellamy's cited the deal as a "key" plank of its turnaround plan.
In the June statement, Bellamy's said the canning facility was a Certification and Accreditation Administration of the People's Republic of China-licensed site. This is an important hurdle for selling product into China, because such a licence gives a facility the Chinese stamp of approval to manufacture product at the site, that can be exported to China.
The stock will remain in a trading halt until Tuesday, or resume trading earlier when the company has made an announcement on the impact of the decision.
The stock closed on Thursday at $6.74. In January this year, it hit a one year low of $3.703 after a series of problems hit the business.
The market seemed to respond well to the overhaul announced by Bellamy's a few weeks ago, with the stock jumping clear of $6 and trading as high as $7.58 on June 20.
But the past year has been a turbulent one for the one-time market darling, as its infant formula lost Australian market share, it revised its China sales down and it held a fiery extraordinary general meeting in Melbourne in February that led to major changes on the company's board. This year it has replaced both its chief executive officer and chairman.