RE: Coal Barron's....How they do it..... Yesterday I ended the first part of this with more questions then answers...I wondered why two companies bent over backwards to help Ming Zhao on request...I am now going to continue the line of thought by finishing the KSE saga.
Since Zhao exited KSE I became aware through a annual report released by them for the 2011 fiscal year where in the report KSE indicated that nearly all of their debt, in the form of Bank loans or whatever firm type lent them money had been underwritten by Ming Zhao or Shanxi Puda Coal, the former subsidiary of Puda Inc. Essentially he was co-signatory on these loans, using his credit and assets to secure the funding likely because KSE's assets were either non-performing or in debt but that is speculative on my part. However it is the condition they were in and still are in.
So.......what we have is a favor. A quid pro quo with KSE management.
Setting that aside, lets go to a more recent development in mid 2012. let's take a look at the Huarong Trust product, called Rongfeng Hongsheng 3. here is the use of funds statement.
| Trust funds for the purchase of Shanxi Liulin Hong Sheng Jude Coal Industry Co., Ltd. (hereinafter referred to as "Jude Coal") holds the mining rights of usufruct, Jude coal to meet the agreed conditions premium repurchase all specific income right and payment of the repurchase price. |
| Credit enhancements: | Jude Coal mining rights mortgage commitment, the commitment to allow in the administrative department in charge of handling the case of mining rights mortgage registration, Jude Coal mining warrants pledged to Huarong Trust, enterprises will Huarong Trust with debt commitment letter and agreement be notarized at the notary office, to ensure the validity of the mortgage Huarong Trust enjoyed from the law; Jude Coal Holdings shareholders Shanxi HongSheng Energy Development Investment Group Co., Ltd. ("Hongsheng Group held Jude Coal 100% stake) 100% equity pledge commitment; Huarong Trust and the debt commitment letter and related agreements will be in the Notary Office notarized from the law to ensure the effectiveness of Huarong Trust enjoyed a pledge; 3, Mountain Puda Coal Group Co., Ltd. repurchase Jude Coal premium the specific income right and jointly and severally liable to pay the repurchase price assurance guarantee, Mountain of Puda Coal Industry Group Co., Ltd. with the Shanxi Coal Mine mergers and reorganization of the main qualifications of large enterprise groups. According to its 2011 audited financial report, as of the end of 2011, the Mountain Sipp Big Coal Industry Group Co., Ltd., with total assets of 15.696 billion yuan, the Total liabilities totaling 9.585 billion yuan, 6.111 billion yuan Total owners' equity, the ability of the actual security. Hongsheng Group control flexor whole big and their spouses to provide personal unlimited liability guarantee for Jude Coal premium repurchase right to specific assets and payment of the repurchase price; 5, account regulatory measures as follows: Jude coal industry opened in the name funds escrow account to receive the trust funds to ensure that the trust funds for their intended purpose; the set repayment imputation: The trust scheme scheduled to expire before the 30th day imputation investment principal balance 50% payment in Trust plan scheduled to expire before the 10th day of imputation of all investment principal balance of, and all accrued and unpaid investment premium, and the imputation of all funds paid to the escrow account the imputation of funds in the escrow account can only be used to pay repurchase price shall not be used. |
This trust is to fund the investment for expansion of the Jude Coal Company, (a former Zhao holding) now owned by the Hongsheng Group. A known associate of Ming Zhao. If you can get through the translated document, you will see that Mountain Puda Coal....(Shanxi Puda Coal Group) has underwritten this trust loan as well.....Guaranteeing the repayment with the credit and assets of Shanxi Puda Coal. Perhaps it was done only to facilitate the sale of Jude to Hongsheng, but in any case, the assets of Hongsheng should have been enough to finance the deal.....But it was not and a favor was granted by Zhao.
You see how this works?
On the surface these look like normal business deals yet under it are obligations due to favors that Zhao is continuously collecting and accumulating as he goes about his business deals.
Puda Coal Inc was also the recipient of some of these favors in the form of loans and so forth. people working at Puda Coal in executive capacities must have also been beholden to Zhao for the fraud to have been committed.
It is my belief that Yao Zhao, the person who actually transferred the SPCG securities to his brother in order that they be used as collateral for the Citic Trust, was essential paid back the money he lost on his Puda stock by way of this Hongsheng group transaction.
But it's important for me to again repeat that this sort of thing is pervasive in China. It is culturally rooted and similar to what we the US, transacted business in the 1930s. But it's important for investors to understand that these transactions underneath the surface are not considered unusual, or illegal in China. They have no way to enforce our version of business morality and transparency of their culture and they will not enforce our ways on their businessmen.
It's just that way......It is what it is, and we cannot expect to change it from here. What we have to do is understand it or accept it, or to not do business with them. This is why our courts will never be able to protect shareholders and why the SEC should not even pretend to, regarding Chinese equities.
There will never be transparency under the current Chinese regime. The government functionaries are all complicit in this way of conducting business. It not only won't change, it can't. Threats of suits and prosecutions by our courts of law and regulators are not listened to in China....Not really...Occasionally they will nod their heads in agreement and give us lip service....but it's the same thing year after year, after year.
More later...