What happened to the gold in Wuhan?

The Kingold Company, 金凰珠宝, of Wuhan, listed on the Nasdaq, is in turmoil. It had pledged 83 tons of gold as part of a loan from financial institutions, but nothing went as planned, and the gold disappeared or may never have existed!

A great actor in gold jewelry

Kingold was born in 2002, and on August 18, 2010 (two 8s in that date, August is the 8th month!), the group entered the Nasdaq. The company is one of China’s largest manufacturers of gold jewelry. Its sales in 2018 were $2.446 billion, and net income was $49.5 million. For the year 2019, only data for the first nine months are available. Is this normal? They show, over this period, a drop in sales with only 1.443 billion.

The loan

To meet cash requirements, the company took out a 160 billion yuan ($22 billion) loan in 2019 from a pool of nine financial institutions. The information released is not yet very accurate and differs. The Chinese media report that after the difficulties of the second half of 2019 and the health crisis, several institutions wanted to ensure the quality of the gold and… Surprise! The first tests on May 22 revealed that the ingots did not contain the precious metal. According to various testimonies, this practice of the owner of the group is not unknown in Wuhan, which explains why most of the lenders are not from the region, such as the trust company of Dongguan.
The lenders had taken out a double insurance policy with gold as collateral and an insurance subscription. But, according to initial reports, the insurance could not cover this kind of disappointment.

gold in china

More grey areas

Journalist Wang Jian comments on little information that falls within the judiciary’s purview, but the size of the case is sobering. He points out that China’s national gold reserve is 1,985 tonnes, and annual production is 380 tonnes. Eighty-three tonnes represents more than 4.5 billion dollars. This is no small matter.
The so-called gold was kept in banks. Insurers, financial institutions, banks did not carry out controls… Who took responsibility for going into such an operation? The company with the cooperation of insurance employees? Wang Jian notes that this kind of activity is representative of the state of corruption in banking and financial circles and is reminiscent of specific sectors’ bubble state. Kingold initially set out to buy out a state-owned company in 2002 using a loan and financed itself with unreal gold. A deal that is not going to restore the image of Chinese companies listed in the United States. The share (code KGJI), which had already lost more than 50% since October 2019, yesterday dropped 23.77% on the Nasdaq to finish at $0.85. The share is now traded on the Nasdaq.

To follow, other revelations will undoubtedly bring more precision. The Wuhan government has formed a special team to find out all the ramifications of the case.

Articles on finance here and economics here.

Sources consulted:

Wang Jian, 中国爆出300亿假黄金惊天大案/王剑每日观察

假黄金换百亿融资 武汉金凰什么来头?

30 June 2020

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