Shareholder used listed mines as loan security
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.
In Hong Kong yesterday, Wu said that since the South China Morning Post first made inquiries on Monday, he has repaid the 150 million yuan his private companies had borrowed under the Shanghai Pudong facility and removed the pledge.
Real Gold company secretary Lulu Yu provided a document last night which appeared to show Shanghai Pudong bank had released the charge. The bank document was dated yesterday.
Yu claimed that the Hong Kong-listed company's directors 'were not told about this pledge'.
Webb said: 'This shows severe problems with internal controls.'
Trading in Real Gold's shares has been suspended since May 27, after a report by the Post that the company appeared to have filed different sales and profits figures with the SAIC and Hong Kong stock exchange.
Real Gold then stated that the SAIC filings this newspaper had obtained via mainland data provider Qingdao Inter-credit were inaccurate. The miner's shares have not yet resumed trading.
Before the trading halt, Real Gold was valued at HK$8.1 billion.
Fraser Howie, the author of Red Capitalism, said the fact that Shanghai Pudong accepted assets Wu did not own as collateral for borrowings raised serious questions about loan quality and internal controls at mainland banks.
'If [mainland] banks are accepting dubious collateral, what does that tell you about their risk management processes?' he asked.
Real Gold joined the Hong Kong stockmarket in February 2009 in a HK$1 billion IPO led by Citi and Macquarie.
The miner then raised a further HK$2.2 billion in follow-on share placements.
In December 2009, Wu pledged his personal shares in Real Gold as collateral for exchangeable bonds. This was disclosed by the Hong Kong-listed miner.
The company is audited by big-four accountant Deloitte.
The amount of debt, in yuan, that Wu Ruilin's companies paid back to the bank yesterday to release Real Gold's mines as security