EXCLUSIVE: Dongying Fangyuan in search of buyers

China’s largest private copper smelter Dongying Fangyuan Nonferrous is now up for partial sale, Fastmarkets has learned.

The smelter in Shandong has recently approached some major non-ferrous metal companies to seek a ‘strategic partnership’, multiple sources familiar with the matter said.
The strategic partnership could mean the sale of a partial stake for fundraising at the smelter, which was once the fourth largest copper producer in China. 
Guangxi Nanguo Copper, another private smelting operator, was among the first approached, three sources said, although talks are at a preliminary stage with no agreement yet.
One state-owned copper producer has also been approached, a source with knowledge of the matter, said.
The stake amount offered for sale is unknown, while sources said that any equity deal involving state-owned organisations, would need Dongying Fangyuan's debts to be restructured beforehand.
Dongying Fangyuan and Guangxi Nanguo Copper had not responded to requests for comment at the time of publication. 
  
According to a Shanghai Securities Exchange filing, Dongying Fangyuan is 71.39% owned by Dongying Development Zone Fangyuan Nonferrous Metals Industrial & Trading Co., which in turn is 74.3% owned by founder Cui Zhixiang as of August 2019.   
The remaining 28.61% stake is owned by a Singapore-based company called Golden Goldsmith Jewellers. 
Two years ago, its annual output of refined copper hit 748,000 tonnes made it one of the country’s biggest concentrates and scrap importers.  
Dongying Fangyuan currently has frozen assets, lawsuits and access to credit and raw materials, so is currently running at limited capacity, Fastmarkets reported. 
 
As of the end of June 2019, Dongying Fangyuan’s total liability was $1.4 billion, while cash and cash equivalents came to $268 million, according to a Shanghai Securities Exchange filing. 
Domino effect
Over the past six months, more banks and contractors have flocked to the courts to freeze the assets of Dongying Fangyuan to further strain its liquidity, Fastmarkets understands. 
In December last year, Fastmarkets reported on a Chinese court’s ruling to grant Shanghai Pudong Development Bank the legal right to freeze Dongying's assets - worth more than 214.41 million yuan ($30.58 million) - or assets of equivalent worth.  
In the same month, Qi Shang Bank applied to freeze the assets of two of Dongying Fangyuan's subsidiaries: Dongying Lufang Metals Material and Dongying Fangtai Metal Recycling, a public court document showed.  
In January 2020, the Zibo Immediate People’s Court ruled in favor of the Shandong-based bank to freeze assets worth 53 million yuan, the ruling said. 
Even the company's contractor - a construction subsidiary of Daye Nonferrous - was granted the legal right in April this year to freeze assets worth over 11 million yuan of Dongying Lufang's, another ruling showed. 
Shortly after, ABN AMRO Bank became the first foreign bank to file a claim against Dongying Fangyuan for close to $40 million at a Shanghai court. This is because the Dutch lender has one of the biggest exposures to Dongying Fangyuan.
Auditor Ernst & Young found Shandong Fangyuan Nonferrous Metals Group suspected of financial fraud via exaggerating its profits and production levels in 2018 and 2019, it was reported on June 17. 
The following day, however, the company issued a statement denying the report's claims. 

Julian Luk

julian.luk@fastmarkets.com

Published

Julian Luk

June 19, 2020

10:38 GMT

London