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Citic hit by Qingdao metals scandal

Updated: 2014-06-11 09:48


Banks have been checking their exposure to Qingdao port to see if

they are at risk from the issuing of fake metals receipts.

    Citic Resources yesterday said the metal it owns at Qingdao port may be affected by a probe into suspected fraud, the latest firm caught up in a scandal that has raised broader worries about the risks of metal financing in China.
    The probe at the mainland port, where a third-party firm is suspected of using single cargoes of metal multiple times to obtain financing, has also shaken markets and pushed down copper prices amid fears the problems could extend to other ports and force a crackdown on using metal as collateral for finance.
    The investigation into the status of aluminium and copper products stored at the world's seventh-biggest port may hit the group, Citic Resources said, sending its shares down by more than 8 per cent to their lowest since May 7. The firm said it has sought a court order in Qingdao to secure its metal assets.
    Citic Resources is the commodities trading unit of China's biggest and oldest state-owned financial conglomerate company, Citic Group. Singapore sovereign wealth fund Temasek Holdings also holds an 11.46 per cent stake in the unit.
    "At present, the status of the investigation is unknown to the group," chairman Peter Kwok Viem said in a filing to the Hong Kong stock exchange. "Until the status of the investigation is clarified, the company is not able to accurately assess its impact on the group's alumina and copper stored at Qingdao port or on the group itself."
    The city's police are investigating a private metals trading firm, Decheng Mining, over a suspected metal financing scam at the port, two police sources with direct knowledge said.
    "Decheng is under investigation for its financing activities at Qingdao Port," a police officer involved in the investigation told Reuters. The officer asked not to be identified.
    Decheng Mining is a unit of Dezheng Resources Holding Co Ltd, a Qingdao-based firm whose chairman is Singaporean Chen Jihong. Trading company sources and bankers who have previously dealt with Decheng said Chen had been detained by authorities since late April over the investigation.
    Singapore's Ministry of Foreign Affairs (MFA) declined to comment on whether Chen had been detained but said it was monitoring the situation.
    Banks and trading houses were checking their exposure to the port and others to see if they are at risk from the issuing of fake receipts. China's metals sector could have its access to funding squeezed and copper prices could come under more pressure if new cases arise.
    Citic joins Standard Bank Group and a part-owned unit of Louis Dreyfus, Singapore-listed GKE, which warned last week of potential losses. Standard Chartered has said it is reviewing metals financing to a small number of companies in China while Citi Group said it would work closely with authorities, warehousing companies and clients to resolve any issues.
    Pledging commodities to a bank, often using a warehouse receipt as proof of ownership, has become a popular way of raising finance on the mainland, often to skirt restrictions on raising credit.
    The Wall Street Journal, citing sources, reported Western banks were concerned a potential fraud has flared up at a second Chinese port, Penglai, also in Shandong province. A port official said it was not affected by the investigation at Qingdao. The official said Penglai Port owned the bonded metal warehouses, rather than them being managed by a third-party firm or operators.
    "We believe the developments in Qingdao are likely to continue the significant scaling back of [foreign exchange] inflows from foreign banks into China via commodity financing business," Goldman Sachs said.


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