12-13 Nov, 2014 - Singapore, SINGAPORE
Novotel Singapore Clarke Quay
Novotel Singapore Clarke Quay
Among the many banks launching legal action, following the Qingdao case in China, is HSBC. The bank is starting a probe into Decheng Mining, the firm caught in the eye of the allegations, to find whether it used fake warehouse receipts to obtain multiple loans.
An estimated $900 million exposure involves banks and trading houses in this suspected metal financing fraud in China. It is expected that the legal battle will be dragged over years and there are fears that it will hinder the recovery in metal trade.
Those in the commodity financing business will have to introduce newer and better controls on lending requirements to ensure their future is not effected.
The scandal is also expected to negatively impact the commodity financing market and it is said that there might be reduced lending on metal collateral in the next six to twelve months.
It's reported that China's imports of refined copper, which is most widely used metal in financing, fell 8 percent in June from a year earlier to hit a 13-month low as banks reduced lending for metals imports following the probe.
Further the lawsuits will drag for years as there are multiple claimants over cross-country jurisdictions. Plus it also involves state-owned entities and a separate corruption probe on Chen Jihong, the chairman of Decheng's parent firm.
As China recognizes international arbitration awards, a recoup of losses with the help of arbitration is possible. But that too takes at least two to three years.
It's still unclear how the full financial impact of the Qingdao case will impact the commodity financing market. But publicly traded banks and trading firms have been forced to disclose potential losses. Some of these such as HSBC, Standard Chartered, Citi, Standard Bank , Mercuria Energy Trading and Citic Resources have more than $880 million of exposure.
More on impact of the Qingdao case and the risks of commodity financing will be discussed at the Warehouse, Cargo & Structured Commodity Finance summit on 12-13 November, 2014 in Singapore.
Contact Ms. Grace at grace@cmtsp.com.sg or call +65 6346 9147.
