Citigroup Seeks $270M From Mercuria in China Metals Trial

Citigroup Inc. said it’s owed about $270 million by Mercuria Energy Group Ltd. from a financing deal linked to metal stored in Chinese ports at the center of a collateral fraud probe.

Citigroup won its bid for an accelerated trial date at a London court hearing today after Daniel Toledano, the bank’s lawyer, said there was “an urgent need” to deal with the matter. “The sums at stake here are enormous,” he said. Judge Andrew Popplewell agreed that the trial should take place by Christmas.

The bank said it delivered metal held in the Qingdao and Penglai ports as part of a sale-and-repurchase agreement, and that Mercuria Energy hasn’t paid for it. The metal is under “lockdown” in China because of an investigation by Chinese authorities, Citigroup said in court documents.

Banks and trading companies are fighting to secure assets in Qingdao port, where officials are investigating whether companies controlled by Singaporean national Chen Jihong used the same batches of commodities as collateral for loans from several lenders. Standard Chartered Plc said on Aug. 6 it has made provisions of $175 million related to the potential fraud, while Chinese banks have about 20 billion yuan ($3 billion) of exposure, two government officials said July 16, citing findings of an official probe.

Not ‘Normal’

“It’s not a normal case,” Mercuria’s lawyer Graham Dunning told the court, arguing against a trial taking place this year. “We don’t know whether the metal is sitting there or not. The parties cannot get into the warehouses.” Citigroup never properly transferred possession of the metal to Mercuria, Dunning said.

Jeff French, a spokesman for Citigroup in London, declined to comment. Benoit Lioud, a Mercuria spokesman, said by e-mail that he was unable to immediately comment on the matter.

Citigroup Chief Financial Officer John Gerspach said in July the bank has about $280 million in loans tied to commodities at two ports in China. The contracts, with non-Chinese units of international corporations, are guaranteed by the parent companies, he said.

Mercuria and Citigroup “need to know where they stand as soon as possible,” Judge Popplewell said.

Mercuria, based in Geneva, agreed in March to buy JPMorgan Chase & Co.’s commodity business for $3.5 billion. That deal, which has yet to be completed, will significantly increase the 10-year-old firm’s gas and power trading operations in North America and Europe.

The case is: Citigroup Global Markets Limited & Anr v. Mercuria Energy Trading PTE Limited & Anr, High Court of Justice, Queen’s Bench Division, Commercial Court, 14-884.

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