348 creditor suits against Shanghai steel magnates in 28 days

348 creditor suits against Shanghai steel magnates in 28 days

Staff Reporter 

2014-02-25

The troubles of China’s steel industry have culminated in charges filed by creditor banks against some industry leaders, notably Xiao Jiashou and Zhou Huarui.

From Feb. 20 to March. 20, the amount of litigation involving steel traders to be heard in Shanghai courts totals 348 cases, almost half of the total litigation of 700 to be heard in the city’s courts during the period. Most of these suits are being filed by major creditor banks, including ICBC, China Minsheng Bank and the Bank of China.

According to the Guangzhou-based Money Week, creditor banks have listed a considerate amount of loans taken by steel traders as non-performing loans or bad loans.

An industry insider said that Xiao Jiashou, the chairperson of Shanghai Songjiang Steel Market Operation Management, has defaulted on huge banking loans, on top of debts of several hundreds of millions of yuan owed to the private sector, while Zhou Huarui, chairman of Shanghai Yixian Steel City Group, was implicated as a guarantor for non-performing loans taken out by his associates.

Banks rushed to extend loans, mostly unsecured, to steel traders under the government’s loose credit policy in 2009, a reversal of their previous reluctance to offer such loans due to the inability of traders to offer collateral. Some corrupt banking officials colluded with figures in the steel industry, using forged orders or mortgaged collateral to extend loans. “Banking officials didn’t bother to check the inventories of steel traders or conduct other on-site checks for such loans, sidestepping the banks’ risk-management mechanisms,” remarked an industry insider.

According to the Shanghai Banking Regulatory Bureau, outstanding banking loans for steel trading firms in Shanghai peaked at 200 billion yuan (US$32.7 billion), with interest rates reaching 15% per annum, leading to 25 billion yuan (US$4.1 billion) of annual interest burdens on these firms.

Problems began to surface in 2011 with the economic downturn, which caused stagnant sales of steel products and drove down steel prices, resulting in heavy losses for steel traders. Banks started to tighten credit for steel traders at the same time. Unable to access loans, steel traders then resorted to private lenders in China’s shadow banking system. Growing numbers of steel traders were unable to pay back banking loans, a situation compounded by the industry practice for steel traders to act as guarantors for each other.

With their confidence and patience exhausted, banks sued large numbers of indebted steel traders. In April 2013 alone, Shanghai courts saw 209 suits filed by creditor banks against steel traders and the cases numbered 302 in August 2013.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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