Operator quoted as saying probe may uncover irregularities of some traders

Qingdao Port International Co said on Wednesday that shipments from the port would not be disrupted due to an ongoing investigation on financing irregularities, according to the National Business News.

The operator of the world's seventh-biggest port in terms of output said it was investigating instances of financial irregularity involving some traders and related to the reuse of collaterals. "Financing frauds may exist, and this is an issue involving traders. The matter is currently under investigation," the Shanghai-based newspaper said quoting an anonymous source with the operator.

Port officials told China Daily that they had postponed an earlier plan to issue an official statement on the issue on Wednesday.

Media reports on Tuesday said that the northeastern port of Qingdao, which is scheduled to go public in Hong Kong on Friday, had halted shipments of aluminum and copper as authorities look into whether the metals warehoused at the port have been used repeatedly as collaterals to borrow money from different banks.

"We were told we can't ship any material out while they carry out the investigation," the South China Morning Post quoted a source at a trading house as saying in a Tuesday report.

The investigation has rattled investor confidence after reports that Chinese companies are now using commodities as collateral to obtain finance following restrictions on lending. Metals, especially copper and iron ore, are among the most commonly used commodities.

The China Banking Regulatory Commission started an investigation into irregularities in copper-financing, and ordered a couple of lenders to stop issuing loans using copper as collateral. Earlier this year, the commission started a similar campaign on iron ore.

Up to $160 billion of outstanding loans in China are borrowed using commodities as collateral, about 31 percent of the country's short-term foreign exchange loans, according to Goldman Sachs.

According to a report published on Monday by the Metal Bulletin, the total value of the metals involved in the investigation could be in excess of $1 billion.

Due to the scale involved, any default is likely to threaten the stability of the country's banking system, experts said. Also, if wrongdoings are confirmed, banks might become even more reluctant to finance commodity companies, especially metal importers. It will also dampen international commodity prices, many of which are yet to recover from the lows of the global financial crisis.

Offering evidence that it didn't halt shipments, the port of Qingdao told the National Business News that 184 ships, including four big ore carriers, sailed out of the port in the three days between May 31 and June 2. The port handled a total of 125,000 20-foot equivalent units during the three days.

Last month, Qingdao Port International Co raised $377 million in a Hong Kong initial public offering, selling 776.38 million shares priced at HK$3.76 (49 US cents) each.

The port of Qingdao is China's third-largest foreign trade port and the world's seventh-largest port, trading with 700 ports in more than 180 countries, according to its website.

gaochangxin@chinadaily.com.cn

(China Daily 06/05/2014 page17)