(Adds context, details)
July 8 China's CITIC Resources Holdings Ltd
has begun court proceedings against the operator of a
bonded warehouse at Qingdao port as legal action ramps up
following an investigation into metals financing fraud at the
world's seventh busiest port.
CITIC Resources said last month it had been unable to secure
around 120,000 tonnes of alumina, more than half of the alumina
stocks it had title to that were stored at the port pending
payment by buyers and delivery.
Under the legal action, CITIC is requiring the port operator
to confirm its ownership of 223,270 tonnes of alumina and 7,486
tonnes of copper, and to release the metal to the group or to
offer compensation, it said in a filing to the Hong Kong stock
exchange on Tuesday.
"Until the status of the investigation is clarified and the
group has conducted its own investigation, the company is not
able to accurately assess the impact on the Group's alumina and
copper stored at Qingdao port or on the Group itself," CITIC
said in the filing.
CITIC Resources, in which Singapore sovereign wealth fund
Temasek Holdings has an 11.46 percent stake, is the
commodities trading unit of China's biggest and oldest
state-owned financial conglomerate company, Citic Group Corp.
CITIC is the second company to say it has started legal
action to recoup losses since Chinese authorities launched an
investigation last month over the alleged duplication of
warehouse receipts to obtain multiple loans secured against a
single cargo of metal.
They are investigating the company at the centre of the
fraud Decheng Mining and linked companies. Decheng Mining has
not commented on the probe.
Last month, China's Shanxi Coal International Energy Group
said it was suing Decheng and its parent for over $177 million
in missed payments the two had guaranteed.
But given multiple global and domestic banks and collateral
managers have been hit by the potential fraud, each with their
own tailored contracts, questions over jurisdiction, liability
and length of the court process remain.
As details of the potential fraud become clearer, the
possible exposure of various parties to Decheng and its parent
could amount to around $2.8 billion, according to an aggregation
of amounts contained in company statements and Chinese media.
Goldman Sachs estimated in March that commodity-backed deals
account for as much as $160 billion, or about 30 percent of
China's short-term foreign-exchange borrowing.
(Reporting by Melanie Burton in Melbourne; Additional reporting
by Fayen Wong in Shangai; Editing by Stephen Coates and Richard