HONG KONG, July 14 — Standard Chartered Plc sued Chen Jihong, the owner of a metals trading company at the centre of a loan fraud investigation in eastern China, for US$35.6 million (RM110 million) the bank says it’s owed under a loan agreement.

The bank is also claiming interests and costs under the US$40 million loan facility, according to a July 8 lawsuit filed at Hong Kong’s High Court. Valerie Tay, a spokeswoman for Standard Chartered in Singapore, confirmed the lawsuit against the owner of Qingdao-based Decheng Mining in an e-mail today and said the bank couldn’t provide any further information. Two calls to Decheng went unanswered.

Banks are examining lending linked to metals at Qingdao port amid concern that risks are more widespread in China, where traders use commodities from iron ore to rubber to get funding. Decheng Mining pledged the same metals stockpile three times over to obtain more than US$435 million of loans, a person briefed on the matter said earlier this month, citing preliminary findings of an official investigation.

Standard Chartered’s total commodity-related exposure in the Qingdao area is around US$250 million, chief executive officer Peter Sands said on June 26. The loan facility agreement formed with Chen was dated Aug 26, the company said in the lawsuit.

Consular assistance

Standard Bank Group Ltd, based in Johannesburg, said July 10 started legal proceedings in China after about US$170 million worth of aluminium was held in bonded warehouses. Citigroup Inc has said it would work closely with authorities and warehousing companies to resolve any problems for clients.

Chen, a Singaporean national, has been detained and the city-state’s foreign ministry is providing consular assistance to him and his family, the ministry said June 11. He is also involved in a separate inquiry in northwestern Gansu province, two bankers assisting with the probe told Bloomberg last month.

“We believe this episode is an isolated case on a particular company and not a reflection of a larger systemic problem,” Sandy Mehta, chief executive officer of Value Investment Principals Ltd, wrote in an e-mail today. “In every country in the world, be it developed or developing markets, you will find some bad apples.”

Standard Chartered shares in London gained 1.3 per cent to £12.09 (RM65.83) as of 10.06am local time, paring its slump this year to 12 per cent. The bank’s stock in Hong Kong closed unchanged today at HK$159.60 (RM65.50).

Steps by the Chinese government to rein in credit raised companies’ borrowing costs in recent years and triggered a surge in commodities financing deals that Goldman Sachs Group Inc. estimates to be worth as much as US$160 billion.

The legal proceedings against Chen were reported by the Wall Street Journal earlier today. The case is Standard Chartered Bank (Hong Kong) Ltd and Chen Jihong, HCA1283/2014, Hong Kong Court of First Instance. — Bloomberg