China’s largest bank is being sued by Dutch lender ING for losses suffered in a series of copper deals in a case that highlights the risks of servicing the scandal-plagued world of commodities trading. .
Amsterdam-based ING is seeking $170 million in damages from the Industrial and Commercial Bank of China for disclosing copper export documents, according to Hong Kong court filings reviewed by the Financial Times. It alleges that it violated the terms of the contract by failing to collect payment.
The result was an ING booking loss on metals sold by Hong Kong-based Maike’s wholly-owned subsidiary, Triway International, to China’s largest copper trader, Maike Metals International. Maike banked to his ICBC and Triway to his ING, but the latter trader did not receive payment and ING was funding the transaction, said a person close to the Dutch lender. .
Allegations of ICBC’s breach of contract came just before Maike declared a liquidity crisis last September, saying he had to sell his assets and stock holdings because he was short on cash.
The restructuring commodities trader, which handled a quarter of China’s refined copper imports, was squeezed after short-term financing against copper stocks to invest in China’s property market . Those investments have soured amid a rigid zero-Covid policy and Beijing’s crackdown on the sector.
Maike’s financial troubles have fueled concerns about the metals trading sector, which has been rocked by a string of frauds. Glencore and other global trading groups cut off supplies to Chinese metal merchant Haldao Ruisheng after $500 million worth of copper went missing last year. Singapore-based trader Trafigura said in January that he was the victim of a $577 million nickel scam, and last month a bag of stones instead of nickel was found inside a warehouse on the London Metal Exchange. I was.
ICBC is Maike’s main bank and is headquartered in Xi’an, the provincial capital of northwestern Shaanxi. ICBC fired the head of its main Xi’an branch in October last year due to problems with its international trade finance business, according to a report by Chinese financial news outlet Caixin. According to reports, Maike was the branch’s largest customer.
The lawsuit exposes China’s largest state-owned bank by assets to reputational risk, according to people familiar with the matter, and the country’s top banking regulator, the China Banking and Insurance Regulatory Commission, has informed ING of the matter. asked about
Western commodity traders and financiers believe the outcome of the lawsuit will help determine the level of confidence in the continuation of commodity finance in China. , is gradually withdrawing from the type of lending that once dominated in mainland China.
Among them, JPMorgan Chase, the largest U.S. metals trading bank, has significantly reduced its exposure to Asian customers after acting as a counterparty to China’s largest stainless steel producer, Tsingshan. a little over a year ago.
Colin Hamilton, managing director of product research at BMO Capital Markets, said banks’ concerns in recent years have been mitigated somewhat by their reliance on court-provided arbitration systems.
“this [case] It could lead to more governance concerns,” he said. “Additionally, some form of ‘governance premium’ may even apply. [by banks] Is to trade finance to China to cover legal and insurance costs. ”
The Hong Kong High Court held a public hearing on the case on April 12.
ING and Maike, as well as Reed Smith and King & Wood Mallesons, the law firms representing ING and ICBC respectively, declined to comment on the matter. ICBC and CBIRC did not immediately respond to requests for comment.
Additional reporting by Chan Ho-Him from Hong Kong