Court freezes shares in mainland commercial bank held by company that guaranteed 640m yuan loan
Hong Kong-listed Yanzhou Coal Mining has moved to safeguard a 640 million yuan loan it extended to an obscure industrial company in Shandong province, after it emerged that the loan's guarantor could not provide adequate security.
The Shandong High People's Court has frozen 289 million shares in a mainland commercial bank held by Lianda Group, which agreed to guarantee the one-month loan extended by Yanzhou Coal to Shandong Xin Jia Industrial.
Mainland firms routinely lend money to other corporates in the hope of locking in higher rates of interest. But the practice is fraught with danger, and its use by Yanzhou Coal - one of the mainland's largest coal companies - highlights one of the risks investors face even when buying shares in flagship mainland corporates.
According to a company statement yesterday, the loan charged 7 per cent interest per annum and was issued 'through' Bank of China's branch in Shandong's capital, Jining.
The loan amount is equal to almost 50 per cent of Yanzhou Coal's last full-year profit of 1.38 billion yuan.
'We have spare cash and the loan [to Xin Jia] was a good opportunity to earn money given low bank interest rates,' Yanzhou Coal company secretary Chen Guangshui told the South China Morning Post.
