Real Gold's Wu resigns over loan pledges

Wu Ruilin, the controlling shareholder of Inner Mongolia-based Real Gold Mining, has resigned as a director following revelations by the South China Morning Post that he inappropriately pledged the listed company's mines to obtain personal loans.

While Wu, a telecoms-to-mining magnate who founded Real Gold, was never on the listed company's main board of directors, he was a director of one of its subsidiaries, Lita Investments.

The company said yesterday that Wu resigned from Lita on June 16 after its board discovered the asset pledges following inquiries by this newspaper. Wu no longer holds any position at the listed company.

Real Gold has insisted that none of its board directors, led by chairman Lu Tianjun, were aware of Wu's asset pledges until contacted by this newspaper about them on June 13. 'This incident highlights the serious corporate governance weakness of the company,' Macquarie analyst Calvin Chung wrote in a note to clients yesterday.

In October 2010, according to documents obtained from the Huizhou Administration of Industry and Commerce, Wu arranged a 240 million yuan (HK$288 million) borrowing facility with Shanghai Pudong Development Bank for four private companies that are part of his Cosun telecommunications-to-mining conglomerate. Wu signed a similar pledge with the bank for a 100 million yuan borrowing facility in September 2009, Real Gold announced yesterday.

In both instances, Wu handed Shanghai Pudong bank control of Fubon Industrial, a Real Gold subsidiary that owns all of its mines, in the event that his four private companies could not repay their borrowings.

Real Gold stated yesterday that all of Wu's asset pledges would have proven 'invalid' if the bank ever tried to enforce them.

The Hong Kong-listed company added Wu had repaid all of the loans, with the bank releasing the charges over its mines.

Macquarie's Chung wrote: 'Although the pledges were no longer valid, we should be concerned with the founder's motive in making them in the first place.'

Real Gold joined the Hong Kong stockmarket in a February 2009 IPO, raising HK$1 billion. It then raised a further HK$2.2 billion in follow-on share sales. Citi and Macquarie handled the IPO while the company is audited by Deloitte, a member of the big four accounting giants. Wu has already pledged his personal shares in Real Gold as security for exchangeable bonds. That deal was disclosed by the listed company.

The miner's short history as a public company has been rocky.

Wang Zhentian, the company's chairman at the time of its listing, resigned in May 2009. Real Gold chief executive Qiu Haicheng resigned in May this year. He was replaced by an internal candidate, vice-chairman Ma Wenxue. The miner's shares have been suspended since May 27, following a report by the Post that the company appeared to file different sales and profit figures with the Hong Kong Stock Exchange and the mainland's State Administration of Industry and Commerce.

Real Gold has told shareholders the Post's data, supplied by mainland credit bureau Qingdao Inter-Credit, was incorrect, but its shares remain suspended.

Before trading in its stock was halted, Real Gold was valued at HK$8.1 billion on the stock market.

Its biggest investors include well known Hong Kong fund manager Value Partners, which owns 9.27 per cent of the business. Wu owns 52.75 per cent of the company through a British Virgin Islands-based vehicle he controls called Lead Honest, according to Bloomberg. He is also recorded as having a short position covering 25.79 per cent.

543m yuan

The net profit Real Gold reported to Hong Kong investors in 2009

- 7.5 million yuan loss reported to mainland regulators for same year