A Chinese court has accepted a bankruptcy petition for Sanlu Group which was at the center of a tainted milk scandal and is facing huge debts, an official said Thursday.

Wang Jianguo, spokesman for the city government of Hebei provincial capital Shijiazhuang, said the Intermediate People's Court of Shijiazhuang City has accepted the petition made by the Heipingxi Road branch of Shijiazhuang City Commercial Bank - a creditor of Sanlu.

Sanlu Group faces 1.1 billion yuan (US$160 million) of net debts, Xiang said at a press conference.

As of Oct. 31, financial auditing and assets appraisal showed the group's total assets were worth 1.56 billion yuan while its total debts were 1.76 billion yuan, the spokesman said.

On Dec. 19, Sanlu Group borrowed 902 million yuan to pay the medical fees of children sickened by its melamine-tainted baby formula and to compensate the victims.

Sanlu products were found to contain melamine, which was being used to increase the apparent protein content in milk. The use of the industrial chemical is restricted in food.

Children can develop kidney stones after drinking such milk.

The scandal surfaced in September. Some other dairies' products were also found to contain the chemical. The Ministry of Health has said it was likely the contamination had killed six babies. Another 294,000 infants suffered from urinary problems such as kidney stones.

Sanlu stopped production on Sept. 12. As of Oct. 31, the group recalled more than 10,000 tonnes of baby formula products worth nearly one billion yuan.

In the past few days, several hundred salespeople had come to Shijiazhuang to ask for the money Sanlu owed them after word of the company's bankruptcy spread.

The group raised 300 million yuan in October and paid each of the agents 30 percent of the money owed to them, Wang said, adding that another 30 percent would be paid Jan. 10.

"Once the enterprise has difficulty in raising money, the government will guarantee the money be paid to the agents as promised."

The salespeople had accepted the plan as of Tuesday and they are calm, Wang said.

Fonterra, a New Zealand dairy firm which owns 43 percent of Sanlu, said Sanlu will be managed by a court-appointed receiver who would be in charge of selling off the company's assets and repaying creditors in six months.

Fonterra has written down the full value of its investment in Sanlu, but its chief executive Andrew Ferrier said the company would continue its business in China.

A spokeswoman for Sanyuan, a potential buyer of Sanlu, said her company had been negotiating the acquisition of Sanlu.

"Adjustments to our plans won't be decided until the board of directors meet," said Wang Qian, secretary of the board of directors for Sanyuan company based in Beijing, in an interview with Xinhua Thursday.

As one of the earlier buyers showing interest in buying Sanlu, Sanyuan, a listed company, has made its intent known to the public. Its shares have therefore been pulled from trading.

Industry observers say if Sanlu is allowed to claim bankruptcy,Sanyuan will be well-poised to acquire the company.

Wang Qian explained she received the Shijiazhuang court's decision Thursday and had prepared a new announcement accordingly.

She declined to disclose the contents of the announcement, saying both the court's order and the company's announcement were submitted to the Shanghai Stock Exchange for further examination.

"If the two documents were adopted Thursday, the public will be informed of Sanyuan's announcement and will know our company's attitude toward the bankruptcy petition toward Sanlu," the spokeswoman said.

(Xinhua News Agency December 25, 2008)