* Lawsuit suggests scandal at Qingdao port hitting other
* Shanxi Coal says owed $177 mln in payments guaranteed by
Decheng Mining and its parent
* StanChart says has about $250 mln in commodity-related
exposure around port
(Adds details, trade comments)
By Fayen Wong and Chen Aizhu
SHANGHAI/BEIJING, June 27 China's Shanxi Coal
International Energy Group said it was suing the company at the
centre of the alleged metals financing fraud at Qingdao port and
its parent for over $177 million in missed payments the two had
guaranteed, a move that suggests the scandal is starting to
affect other sectors in China.
Shanxi Coal, one the country's top producers,
said in a statement to the Shanghai Stock Exchange on Thursday
it was suing three clients over the missed payments as well as
Decheng Mining and its parent, Dezheng Resources, and another
firm that had acted as guarantors.
No one at Decheng Mining or Dezheng Resources was
immediately available for comment.
Shanxi's exposure to Decheng came as a result of complex
transactions which are typical of commodity financing and the
common business practice of inter-company loans in China.
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.
Shanxi said it had agreed with Decheng in 2012 to act as its
import agent for alumina, aluminium ingots and refined copper
through Citic Australia Commodity Trading. The shipments were
sold to two Hong Kong-registered companies, with Decheng and its
sister company as guarantors.
In another deal, it signed a contract to buy alumina from
Decheng, which was then sold to local firm Qingdao Yida Mining
Ltd, with Dezheng Resources also being one of the guarantors.
"Big state companies often act as import agents for smaller
firms because they have easy access to credit. When you look
into these deals carefully, its clear that they play an
essential role in shadow lending," said an analyst who declined
to be identified because of sensitivities in commenting on state
Many large companies in China engage in the practice because
of the better and quicker returns they can get, compared to
their primary business.
Shares in Shanxi Coal, which reported a 68 percent drop in
its 2013 net profit, were down 3.76 percent at 3.58 yuan at
midday on Friday, after falling as much as 4.3 percent earlier.
Its shares have lost over a third of its value in the past year
on the back of slumping coal prices.
Shanxi Coal's $177 million exposure to Decheng and its
parent is more than four times of its 2013 earnings of $39
Chinese authorities are investigating Decheng Mining over
the alleged duplication of warehouse receipts at China's
third-largest port to obtain multiple loans secured against a
single cargo of metal. Decheng Mining has not commented on the
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.
Standard Chartered, a major foreign provider of
commodity financing deals, said on Thursday it had about $250
million worth of commodity-related exposure around Qingdao port,
although not all of that was at risk.
"That is across multiple clients, multiple locations,
multiple types of facilities, not all of which will be
affected," Chief Executive Peter Sands said on a conference
Authorities have not yet disclosed the amount of metal
involved in the Decheng financing probe, but sources familiar
with the matter said it was about 20,000 tonnes of copper,
nearly 100,000 tonnes of aluminium ingots and about 200,000
tonnes of alumina, the raw material for aluminium production.
That quantity of metal would be worth about $390 million at
Earlier this month, China's CITIC Resources Holding Ltd
said a court was unable to secure more than 100,000
tonnes of alumina it stored at Qingdao port, estimated to be
worth $43 million.
In a further sign of irregularities in China's commodity
financing market, the National Audit Office said this week that
Chinese gold processing firms had used falsified gold
transactions to borrow 94.4 billion yuan ($15.18 billion) from
Spot checks on 25 companies that process bullion, such as
jewellers, showed they made a combined profit of more than 900
million yuan by using the bank loans to make loans themselves
and take advantage of the interest rate differences, as well the
appreciation of the Chinese currency, the report said.
($1 = 6.2173 Chinese Yuan)
(Additional reporting by Ruby Lian, Polly Yam and Melanie
Burton; Writing by Dean Yates; Editing by Raju Gopalakrishnan)