Singapore - Standard Chartered has sued Chen Jihong, the owner of a metals trading company at the centre of a loan fraud investigation in eastern China, for $35.6 million (R380.7m) the bank says it is owed under a loan agreement.
It is also claiming interest and costs under the $40m loan facility, according to a lawsuit filed last week at Hong Kong’s High Court.
The proceedings against Chen were reported by the Wall Street Journal yesterday.
Standard Bank Group said last Thursday it had started legal proceedings in China after about $170m worth of aluminium was held in bonded warehouses in Qingdao.
Valerie Tay, a spokeswoman for Standard Chartered in Singapore, yesterday confirmed the lawsuit against the owner of Qingdao-based Decheng Mining and said the bank could not provide further information.
Calls to Decheng went unanswered.
Banks are examining lending that is linked to metals at Qingdao port amid concern that risks are more widespread in China, where traders use commodities from iron ore to rubber to get funding.
Decheng Mining pledged the same metals stockpile three times over to obtain more than 2.7 billion (R4.7bn) yuan of loans, a person briefed on the matter said earlier this month, citing the preliminary findings of an official investigation.
Standard Chartered’s total commodity-related exposure in the Qingdao area was about $250m, chief executive Peter Sands said on June 26.
Chen, a Singaporean national, had been detained and the city-state’s foreign ministry was providing consular assistance to him and his family, the ministry said on June 11.
He was also involved in a separate inquiry in northwestern Gansu province, said two bankers who are assisting with the probe.
“We believe this episode is an isolated case on a particular company and not a reflection of a larger systemic problem,” Sandy Mehta, the chief executive of Value Investment Principals, said yesterday.
“In every country in the world, be it developed or developing markets, you will find some bad apples.”
Steps by the Chinese government to rein in credit raised companies’ borrowing costs in recent years and triggered a surge in commodities financing deals that Goldman Sachs Group estimates to be worth as much as $160bn.
Citigroup said it would work closely with authorities and warehousing companies to resolve any problems for clients. – Bloomberg