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Chinese offshore investment

Probe deepens into state firm Guangdong Rising’s loss-making Australian mining deals

Former chairman of firm that is said to have covered up huge losses on acquisitions handed to prosecutors for investigation

PUBLISHED : Saturday, 14 October, 2017, 11:02pm
UPDATED : Saturday, 14 October, 2017, 11:47pm

A corruption probe involving a state-owned enterprise in Guangdong said to have covered up huge losses on four Australian mining firms it acquired has deepened, with its former chairman handed over to prosecutors for investigation.

The Guangdong Provincial People’s Procuratorate did not elaborate on the investigation into Li Jinming, who was chairman of Guangdong Rising Assets Management – owned by the provincial government – in its brief statement on Thursday.

But the company has suffered losses of more than 10 billion yuan (US$1.51 billion) on its investments in Australia and a former head of Guangdong’s state assets watchdog has reportedly been asked to assist with the investigation, according to media reports.

Guangdong Rising opened at the end of 1999 with registered capital of 10 billion yuan. Its business interests range from non-ferrous metals to information technology and property.

The company began investing in Australia at the end of 2008, when commodities prices had been hit by the global financial crisis and also at a time when Chinese firms were pursuing mining assets overseas, especially in resource-rich Australia.

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Liu Fucai, who was overseeing state assets in Guangdong at the time, led a business trip to Australia in November 2008 to explore minerals development, according to publicly available information, and the delegation included representatives from Guangdong Rising.

Liu and his son, who was living in Australia, is believed to have introduced Guangdong Rising to business deals in the country, according to an unnamed source cited in a Caixin report on Friday.

Guangdong Rising then began expanding in Australia – the company and its subsidiaries invested a total of A$2 billion (US$1.57 billion) to acquire four listed firms in the country between 2008 and 2015, the Caixin report said.

One subsidiary paid A$45.5 million for a controlling stake in cash-strapped Perilya, a lead-zinc ore producer, in February 2009. Then in May that year, the company’s Hong Kong investment arm paid A$180 million for copper and gold producer PanAust.

Another subsidiary took over Caledon Resources, a coal producer, in August 2011, paying A$500 million. And the company became a major stakeholder in Hawthorn Resources, a gold and base metal explorer, through a consortium led by another subsidiary in 2012. That deal was worth A$15 million.

Guangdong Rising was still buying up mining assets in April this year, with a subsidiary acquiring rare earths producer Northern Minerals for A$60 million, Australian media reported.

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A source close to Guangdong’s state assets regulator told Caixin that most of Guangdong Rising’s deals in Australia – for which it paid high prices – had made a loss.

But those losses had allegedly for years been covered up – only coming to light when Li Zezhong, who spent 11 years at the firm, left the company and became mayor of Zhuhai in May.

His successor then reported the losses to the provincial government, kicking off an investigation.

But a broader anti-graft investigation into Guangdong Rising’s management team had already begun in 2014 – including into former chairman Li Jinming. He was expelled from the party in 2015.

Guangdong’s graft-buster last year described as “dreadful” the losses made by state assets in the southern province.

In September, Li Zezhong was put under investigation for suspected “serious violations of party discipline”, which can refer to anything from corruption to political disloyalty. That investigation is widely believed to be linked to Guangdong Rising.

After leaving the state assets watchdog in 2012, Liu is believed to have gone to Australia in 2014 to be with his family and has refused repeated requests for him to return to China to assist with the graft-buster’s investigation, according to Caixin.