Related: Aluminium products maker China Zhongwang hit with book-cooking and fraud allegations; Liu and parties related to him took out some HK$36.5 billion in loans from mainland banks, and used the funds to buy Zhongwang’s aluminium products since 2011. HK$38.5 billion of Zhongwang’s revenues has been “fraudulent sales to Liu-controlled undisclosed related parties”. “If Zhongwang is on the hook for these loans, it could be insolvent.”
August 13, 2015 1:31 pm
Shares in China aluminium group hit despite inflated sales denial
Lucy Hornby in Beijing
Shares in China Zhongwang Holdings slumped 12 per cent on Thursday after trading in the world’s second-largest producer of aluminium products resumed for the first time since it denied allegations of inflated sales in a short sellers’ report. The report by the previously unknown Dupre Analytics accused Zhongwang and Liu Zhongtian, its founder, of routing exports through undisclosed related companies. Dupre alleged this was done to obtain tax rebates from the Chinese government.Zhongwang declared the allegations “baseless” and suspended trading on July 31. In a statement on Thursday it said the allegations were “factually incorrect and defy normal commercial logic”.
China is awash in aluminium but the tax system is designed to offer rebates to exporters of processed aluminium, while punishing producers of the energy-intensive base metal, as Beijing tries to curb pollution and incentivise companies to make higher-value products.
That has led some companies, however, to process the lightweight metal into basic products in China, then export them, before remelting the exports back into primary metal or other products once overseas.
This trade is depressing international prices for the metal used in drinks cans, aircraft and cars, triggering complaints from aluminium processors in Europe and North America.
Zhongwang, which has denied remelting any of its exports, has nevertheless found itself at the centre of the controversy after the short seller’s allegations. It faced US anti-dumping penalties four years ago for allegedly trying to sell subsidised metal into North America.
The allegations come at a time of heightened attention on Chinese exports of aluminium products, which rose 28 per cent in the first seven months of this year. International aluminium prices have fallen to a six-year low.
A company called Peng Cheng Aluminum was identified by the short seller’s report as one of the main conduits for Zhongwang’s aluminium products to flow across the Pacific and into the US market.
Dalian Liwang and state-owned China Aviation Engine Holdings sell Zhongwang’s aluminium products to Peng Cheng and Transport Aluminium, the Dupre report alleged.
Zhongwang’s rebuttal says Peng Cheng stopped doing business with Zhongwang in November 2014.
In a July 10 interview with the FT, Lu Changqing, Zhongwang’s executive director, said Dalian Liwang, the company’s largest domestic customer, was controlled by Peng Cheng. “This is something we all know internally,” he said.
Zhongwang’s rebuttal said an aluminium plate plant in the northern port city of Tianjin, which Dupre had said was delayed, will start as scheduled. It said loans raised by Zhongwang from banks in mainland China will fund the plant.