Breaking news - Weiqiao letters leaked

A Chinese website this morning ran the news about two letters being leaked. The two letters, one an attachment to the other, show that Shandong Weiqiao, parent company to China Hongqiao asked the China Nonferrous Industry Association for assistance. The CNIA in turn wrote to the Ministry of Industry and Information Technology (MIIT) with a 3-point assistance plan, attaching the Weiqiao letter to theirs. I will explain what the assistance was for in a moment.

The Weiqiao letter to the CNIA included some paragraphs that they no doubt would rather not have in the public domain. In one part of their letter to the CNIA, Weiqiao blames Alcoa and Rio Tinto for some of their woes. According to the letter, Rio and Alcoa are upset that Weiqiao have busted their bauxite duopoly. The letter asserts that by developing their operations in Guinea, Hongqiao have hurt the profits of the two big foreign companies. The letter then goes on to point out that one of the Short Sellers reports that came out originated from the USA. It’s not hard to draw the inference that US-based Alcoa somehow orchestrated or arranged the short sellers report. (The first report that came out late last year was an anonymous report.)

The letter to the CNIA asks the CNIA for help with getting their 2016 accounts audit completed. The letter points out that the company owes something like RMB200 billion, and failure to get its 2016 audit completed is costing the company a lot of money in capital markets. Investors already wary because of the short sellers reports are also worried that the 2016 books are not closed.

The Weiqiao letter was dated March 4, and the CNIA’s letter to the MIIT is dated March 9. From our enquiries, we think the letter was leaked to a Chinese language financial newspaper. The leak seems to have occurred late last week. The letter shows no markings from MIIT, so it’s possible the leak occurred from inside the CNIA, but that’s a guess on our part, and it doesn’t matter too much as the leak is just as damaging.

For its part, the CNIA has shown little sympathy to Weiqiao. In its letter to the MIIT, the CNIA proposed a three-part response, which can be summarized as - do more research, check more information, work diligently to solve the problem.

Weiqiao is fighting battles on several fronts. Apart from servicing its massive debt, getting its 2016 accounts closed, and battling short sellers, the company also faces challenges on the environmental front. As the South China Morning Post reported in October last year, the company was ordered to close 3.6mt of capacity due to its factories not having the required environmental approvals before construction started. At that time, Weiqiao chose to ignore the order and continue operating, telling the SCMP that the order was not as serious as it seemed. But now in 2017, the Shandong area is subject to at least two more environmental inspections, including one by the local government and one by the central authorities. One would hope that Weiqiao has put its paperwork in good order and received environmental approvals for all that new capacity. The political climate (pun intended) about air pollution is much more strident than even 6 months ago.

As it is a public holiday in China today, the story may not get full airplay until tomorrow. We will monitor the situation, including Weiqiao’s response to the leaked letters, and report more as we have it.

Late update: Ironically, Hongqiao issued a statement on Friday March 31, explaining why their 2016 audit had been delayed, and predicting that the audit would be completed by April 30. I am guessing Hongqiao released the statement last Friday unaware that the letter to the CNIA had been leaked.