China’s biggest bank is being sued by Dutch lender ING for losses in a batch of copper deals in a case that highlights the risks of servicing a scandal-plagued world of commodities trading.
Amsterdam-based ING has claimed $170 million in damages from the Industrial and Commercial Bank of China, alleging it breached contract terms by issuing export documents for copper transactions without collecting payment, according to the Financial Times According to a Hong Kong court filing seen by
This resulted in ING booking losses on metals sold by Hong Kong-based MiK’s wholly owned subsidiary Triway International to MiK Metals International, China’s largest copper trader. Maike banked with ING, with ICBC and Triway, but the latter trader did not receive payment and ING was funding its own deals, according to a person close to the Dutch lender.
ICBC’s alleged breach of contract happened just before Mike declared a liquidity crisis last September when it said it would have to sell assets and shareholdings as it ran short on cash.
The commodities trader, which handled a quarter of the country’s refined copper imports but is now being restructured, after short-term financing using its copper shares as collateral to invest in China’s property market wrung out. Those investments turned sour amid strict zero-Covid policies and Beijing’s crackdown on the region.
Mike’s financial troubles have raised concerns about the metals trading sector, which has been rocked by a series of frauds. Glencore and other global trading groups last year stopped supplies to Chinese metals trader Huludao Ruisheng after $500 million worth of copper went missing. Singapore-based trader Trafigura said in January it was the victim of a $577 million nickel fraud, while bags of stones instead of nickel were found in a London Metal Exchange warehouse last month.
ICBC is the main bank of China, headquartered in Xi’an, the capital of the northwestern province of Shanxi. According to a report by Chinese financial news outlet Caixin, ICBC fired the head of its main Xi’an branch last October because of problems with its international trade financing businesses. Mike was the biggest customer of the branch, the report noted.
The legal action puts China’s biggest state bank at reputational risk and the China Banking and Insurance Regulatory Commission, the country’s top banking watchdog, has asked ING about the matter, according to a person familiar with the matter.
Western commodity traders and financiers believe the outcome of the trial will help determine the level of confidence around the continuation of commodity financing in China. Western banks are slowly backing away from a type of lending that once dominated mainland China after suffering losses and exposure to fraud.
Among them, JPMorgan Chase, the largest US bank in metals trading, has significantly cut its exposure to Asian clients after acting as counterparty to Tsingshan, China’s largest stainless steel producer, which has substantial short positions on the LME. Nickel was central to the suspension of trade. just a year ago.
Colin Hamilton, managing director of commodity research at BMO Capital Markets, said banks’ concerns in recent years have been somewhat eased by confidence in the arbitration system provided by the courts.
“This [case] may raise governance concerns another notch,” he said. “In addition, we may also see some form of ‘governance premium’ being implemented [by banks] To finance business in China to cover legal and insurance costs.
The Hong Kong High Court heard the case on 12 April.
ING and Maik declined to comment on the case, as did law firms Reed Smith and King & Wood Mallesons, which represent ING and ICBC, respectively. ICBC and CBIRC did not immediately respond to requests for comment.
Additional reporting by Chan Ho-him in Hong Kong
