Hong Kong police named the three banks that lent HK$1.75 billion to Citic Pacific, which was at that time concealing massive losses from a disastrous derivatives bet, repeating their earlier accusation of 'conspiracy to defraud'.
Police said the Beijing-backed steelmaker and property developer borrowed the money from Bank of China, Industrial Bank of China and Japan's Bank of Tokyo-Mitsubishi UFJ in 2008. The loans were made just weeks before Citic Pacific's October 20 admission that it would slip up to HK$15.5 billion into the red because of an unauthorised, wrong-way gamble on the Australian dollar.
'They wanted to raise money and they wanted to do that without disclosing their true financial position,' prosecutor Charlotte Draycott SC said in the Court of First Instance yesterday. 'This is a conspiracy to defraud.'
Draycott said the Citic Pacific board sought legal advice on how to delay the announcement of the loss in order to secure the loans. 'While they kept that information secret from the shareholders, from the public and from the exchange, they went to the banks,' Draycott said.
'They wanted to raise money without telling what their true financial situation was,' she said, 'They repeatedly sought advice from lawyers about how long they could delay.'
The three banks declined to comment, while a Citic Pacific spokesman said the company could not talk about an ongoing court case.
The loans in question ranged from HK$250 million to HK$1 billion and were granted to Citic Pacific between September 9 and October 14, 2008 - just a week before the company made a public announcement about its huge losses, the court heard.
A fourth bank approached by Citic Pacific - the Agricultural Bank of China - refused to grant a HK$800 million loan after it discovered the losses, lawyers representing police told the court.
It was the second day hearing of the case, which continues today. Six documents that the company had earlier handed over to the Securities and Futures Commission for investigation remained the centre of contention between the two sides yesterday.
Draycott yesterday told the court these documents, which included minutes of the Citic Pacific board of directors' meetings and letters and notes of legal advice, were crucial for the investigation into the alleged fraud and therefore should be passed on to police.
The prosecutor was rebuffing Paul Shieh Wing-tai SC, for Citic Pacific, who said on Wednesday that the documents were handed to the SFC on the legal condition that they would not be passed on to police.
Draycott argued that these documents would prove that Citic Pacific's board of directors was aware of the losses as early as September 7.
The company's eventual loss for that year was HK$12.69 billion.
Bank of Tokyo-Mitsubishi granted a HK$250 million loan to Citic Pacific on September 25. Bank of China granted HK$1billion on October 10 and ICBC HK$500 million on October 14, the court heard.
Shieh yesterday objected to Draycott's argument, saying there was no evidence.
In reply, Draycott said: 'It's absolutely apparent.'
Mr Justice Alan Wright heard part of the hearing behind closed doors due to the sensitivity of the content of the documents.
The police's two-year investigation into Citic Pacific is a rare example of Hong Kong authorities probing a business with deep links to the mainland government.
Larry Yung, the former Citic Pacific chairman who presided over the derivatives loss and finally resigned in April 2009, is the son of the late Rong Yiren, Deng Xiaoping's most trusted economic adviser and a former vice president of China.
Rong was the first president of Citic, otherwise known as the China International Trust and Investment Corporation. Now a large financial conglomerate, it was founded by Deng in 1979 as an investment vehicle to channel the first Western investments into China.
Citic's model was replicated across the mainland in the 1980s and 1990s, as provinces created their own 'Itics' to collect much-needed foreign currency.
The 2008 loan deals
September 7 Citic Pacific board made aware of the huge loss
September 16 Legal advice sought
September 25 Applies for HK$250 million loan from Bank of Tokyo Mitsubishi. The loan is later approved.
September 26, Octcober 6 Legal advice sought
October 10 Signs HK$1 billion loan agreement with Bank of China
October 14 Applies for HK$500 million loan from Industrial and Commercial Bank of China. The loan is later approved.
October 20 Publishes HK$15.5 billion profit warning