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Potential losses in suspected China port metals financing fraud top $1.2 billion

Published 29/08/2014, 03:53
© Reuters People stand in front of ICBC headquarters building in Beijing
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(Reuters) - Industrial and Commercial Bank of China (SS:601398), the country's largest bank, suffered a loss of less than $200 million (120.59 million pounds) to take a spot among the worst hit banks and trading houses impacted by a suspected fraud at China's Qingdao Port.

Chinese authorities in May launched an investigation into whether a private metals trading firm, Decheng Mining, and its related companies used fake warehouse receipts at Qingdao Port to obtain multiple loans secured against a single cargo of metal.

The exposure of banks and trading firms, including CITIC Resources Holdings Ltd (HK:1205) and Mercuria Energy Trading SA, could amount to more than $1.2 billion, according to an aggregation of amounts in company statements, reports and court documents.

Local media also said Decheng and its parent owed Chinese banks at least 16 billion yuan ($2.58 billion). Decheng has not commented on the probe.

* ICBC has suffered under $200 million in bad loans, the lender's president Yi Huiman said at a media conference in Beijing on Thursday.

* Also on Thursday, a unit of China's Shanxi Coal International (SS:600546) fired off a volley of new lawsuits over a metals financing fraud at China's Qingdao port, adding around $137 million in claims.

The new suits include a claim for $89.8 million plus interest and costs against the Australian trading arm of China's Citic Resources Holding Ltd (HK:1205) for breach of contract.

The company has also launched action against Qingdao Port Group , the Chinese unit of Singapore logistics company CWT Commodities and Winfair Resources Co. Ltd, a firm that specialises in alumina, aluminium and bauxite trade.

In a separate statement, it said it had filed for legal arbitration in disputes with units of Sinosteel for failing to deliver metal. Shanxi is claiming a total of $41.97 million in damages there.

The company said in June it was suing Decheng and its parent for more than $177 million in missed payments the two had guaranteed.

* The metals storage unit of Glencore (L:GLEN), Pacorini Logistics, has launched two legal proceedings against Qingdao Port International <6198.HK> and its related companies claiming a total of $58.4 million for damages related to metal stored at the port. Pacorini said the port and relevant parties failed to deliver 8,085.189 tonnes of aluminium ingots and 112,731 tonnes of alumina, according to exchange statements.

* Commodities trading house Trafigura's warehouse business Impala initiated legal action against two units of U.S. bank Citi and trade house Mercuria Energy Trading in connection with suspected metals financing fraud at two of China's ports, according to a legal document.

* ABN Amro Bank has sued Citic Australia Commodity Trading for making a wrongful claim for a metal cargo which the bank said it already owns the pledge right. The bank has asked the court to order Citic Australia to withdraw claims to the metal and to compensate the bank 1 million yuan ($162,680) for losses, according to exchange statements by Qingdao Port.

* HSBC has commenced wind-up proceedings against Zhong Jun Resources (S) Pte, the overseas arm of Decheng, after the firm defaulted on payments. Zhong Jun Resources owes the lender $4.3 million, according to court documents.

* Dutch state-owned bank ABN Amro [ABRGPA.UL] won an order in the Singapore Court for Chen Jihong, chairman of Decheng's parent company, to pay it $22 million owed under a loan agreement with Zhong Jun and another of his companies.

* Citigroup (N:C) said last month it has about $280 million in loans tied to commodities in two ports at the centre of the scandal. That is a big portion of its roughly $400 million worth of commodity financing deals in China.

* Hong Kong-listed Citic Resources (HK:1205) has begun court proceedings against subsidiaries of Qingdao Port and is claiming losses of $108.1 million, according to exchange statements.

* Britain's Standard Chartered (L:STAN) said it had started legal action to claim about $36 million as part of a $40 million loan facility for Zhong Jun Resources, the Singapore arm of Decheng, a spokeswoman told Reuters.

* Standard Bank Group (J:SBKJ) said it has a total exposure related to the Qingdao port of about $170 million worth of aluminium and has started legal proceedings in Shandong province.

It also has an exposure of $40 million worth of aluminium at other bonded warehouse facilities in Shandong province and has started legal proceedings to secure its position.

* Mercuria had alumina worth about $44 million stuck at Qingdao port, according to four banking sources with direct knowledge of the situation.

© Reuters. People stand in front of ICBC headquarters building in Beijing

* Singapore-listed warehouse company GKE Corporation Ltd , a unit of trading house Louis Dreyfus, said in June that an investigation into the port fraud may affect the business of GKE (Shanghai) metal logistics. It has not stated the value of any potential exposure.

(Reporting by Melanie Burton and Fayen Wong in Shanghai; Editing by Biju Dwarakanath)

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