Metals trader caught up in Qingdao fraud asks for time to repay banks

Wed Jul 30, 2014 7:35am EDT

HONG KONG/SINGAPORE, July 30 (Reuters) - Zhong Jun Resources
(S) PTE, the overseas arm of a Chinese firm linked to a
suspected metal financing fraud at Qingdao port, has asked a
court in Singapore to reject a liquidation order sought by HSBC
Holdings, saying it has enough cash and assets to repay
banks.
    The lawsuits relating to the complex funding transactions,
which are common in China, are being closely watched by banks
and trading firms doing business in the country, which is the
world's top commodities buyer.
    In an affidavit to the court seen by Reuters on Wednesday,
metal trading firm Zhong Jun says it is a profitable business.
    The company and its unit in Hong Kong have $86.4 million of
goods held at bonded warehouses at Qingdao Port as well as 
properties in Singapore worth some $18.4 million, it said.
    "Based on the value of the goods, it is likely that the
goods, upon being sold, would generate enough cash to repay
liabilities owing to each of the financing banks," it said.
    Zhong Jun posted a gross profit of $13.4 million in 2013. 
    Through a complex shareholding structure, it is linked to
Chen Jihong, whose Chinese firm, Decheng Mining, is at the
centre of a probe into whether it used fake warehouse receipts
at Qingdao Port to obtain multiple loans. 
    Chen Jihong and his brother, Chen Jilong, are directors of
Singapore-registered Zhong Jun Resources and HSBC commenced
wind-up proceedings against the firm after news of the Qingdao
metal financing scandal emerged, according to the affidavit.
    Zhong Jun said the company and its Hong Kong subsidiary were
not involved and were not the subject of investigations by the
Chinese authorities. 
    However, the probe has dealt a blow to its cash flow because
it cannot sell any of the metal stored at Qingdao Port and
therefore it has been unable to repay money owed to HSBC, ABN
Amro and Standard Chartered Bank, Zhong Jun
said in the court document. HSBC thus launched liquidation
proceedings against the firm on July 1.
    Zhong Jun said it owed a total of $61.9 million to HSBC, ABN
Amro and Standard Chartered.
    Spokesmen for HSBC and ABN Amro declined comment. Standard
Chartered was not available for comment.
    The trading firm said the financing banks were likely to
recover all of the debt and it had asked Singapore's High Court
to stop HSBC taking further legal action for six months while it
attempts to restructure and sell its assets.
    At the same time, Zhong Jun has engaged lawyers in China to
seek the release of its metal blocked at Qingdao Port.
    Even if the metal could not be sold to provide cash for the
lenders, Zhong Jun said, "given time, there is a likelihood that
banks may be able to recover the remaining amounts from the
other main assets" of the company and its subsidiary.
    "The company is of the view that a restructuring of the
liabilities ... presents the most commercially realistic and
viable strategy. It will offer the creditors the best prospects
of ultimately obtaining a higher recovery than in liquidation,"
it said.
    A number of banks, including Standard Chartered and Citi
, have launched legal action against either Chen Jihong or
his companies since the probe into Decheng Mining began.
    The potential losses from the Qingdao case are unclear but
the scandal has led to a string of disclosures of potential
exposure from global banks and trading firms.
    Citi, Standard Bank, Mercuria Energy Trading SA and Citic
Resources Holdings Ltd have at least $790 million of
exposure, according to company statements and reports.
 
    
    Following is a table of the amount Zhong Jun owes to
financing banks according to its affidavit.
        
     Financing Banks         Amount Owing
 ABN                          $22.019 million
 HSBC (SG)                     $4.305 million
 Standard Chartered (HK)      $35.555 million
 Total Debt                   $61.879 million
    

 (Reporting by Polly Yam and Rujun Shen; Writing by Fayen Wong;
Editing by Alan Raybould)