Wu Ruilin, the controlling shareholder of Inner Mongolian miner Real Gold Mining, pledged a key subsidiary of the listed company as security on loans for some of his private businesses.
Even though he does not own all of Real Gold or sit on its board, Wu signed documents that posted Fubon Industrial, the vehicle holding all of Real Gold's mines, as security for a 240 million yuan (HK$288 million) borrowing facility with Shanghai Pudong Development Bank last October.
The pledge, which was disclosed by Fubon in filings with the mainland's State Administration of Investments and Commerce (SAIC), meant Shanghai Pudong bank may have been able to seize Real Gold's mines if Wu's private companies - part of his telecommunications-to-mining conglomerate Cosun Group - failed to repay their loans.
In its 2010 annual report, Real Gold did not say anything about using Fubon as security. Instead, in a section of the annual report headed 'Pledge of assets', Real Gold stated 'there were no significant charges on group assets as at 31 December 2010 and 31 December 2009'.
Activist investor David Webb said: 'Minority shareholders will want to know why the assets of Real Gold were put at risk to support Mr Wu's other businesses.'
He added the company may also have a case to answer from regulators about false disclosure.