Wilmar’s China unit denies role in 5 billion yuan loss by state enterprise from alleged fraud

WILMAR International ’s China unit has become embroiled in an alleged fraud that has led to billions of losses for a state-owned enterprise there.

The company’s mainland-listed Yihai Kerry Arawana Holdings on Friday (Jan 12) issued a statement denying allegations that one of its business units was partially responsible for a fraud that led to a 5.2 billion yuan (S$973.3 million) loss for state-owned trading company Anhui Whywin International Co.

The unit, Yihai (Guangzhou) Grain and Oil (Guangzhou Yihai), has been sued by the public prosecutor as an “accomplice” in contract fraud related to palm oil trades between Anhui Whywin and a privately owned counterparty, Yunnan Huijia Import & Export Co.

Guangzhou Yihai’s former general manager Liu Degang is also among the accused parties. The company has hired a new general manager to replace Liu, who has been arrested by Anhui Police.

Yihai Kerry, a food processor, said Guangzhou Yihai as a company wasn’t involved in the fraud; but its statement did not deny the involvement of the former general manager Liu.

China’s commodity sector has been hit by scandals in recent years, with forged documents and warehouse receipts used as proof of collateral and credit. The filing by the unit of Wilmar offers a peek behind the veil over commodity trading in the world’s largest consumer market.

The events of the current case stretched from 2008 to 2014. Yihai Kerry went public on the Shenzhen Stock Exchange in 2020.

In 2008, Yunnan Huijia, acting as principal, is said to have engaged Anhui Whywin as an agent to import palm oil for storage in a Guangzhou Yihai unit. Huijia’s head, Zhang Lihua, was said to have bribed the chairman and chief financial officer of Anhui Whywin to allow “delivery before payment”. The normal practice was for Anhui Whywin to receive payment before releasing the goods.

Zhang also allegedly took more than the agreed quota of palm oil for delivery, while forging documents to hide the fact that the palm oil stored had been taken.

Guangzhou Yihai, as a third-party transit storage service provider, is alleged to have assisted the fraud. Its then general manager Liu and another staff member also allegedly took bribes from Zhang, according to the suit.

In its Friday filing, Yihai Kerry said Guangzhou Yihai had no knowledge of the questionable transactions.

“Guangzhou Yihai always transfers goods rights in strict accordance with the contract,” said the company, adding that it complied with due diligence by obtaining confirmation from Whywin’s contact person before transferring the cargo rights. It added that it did not receive any illegal proceeds from the case.

Yihai Kerry said it has yet to assess the impact of the case on the company’s current and future financial periods, since the relevant litigation has not been heard in court and the company does not agree with the allegations.

“The company and its units are carrying on with business as usual,” Yihai Kerry said, adding that it will update shareholders on any progress on the matter promptly.

Its shares traded down 1.1 per cent or 0.34 yuan, to 30.80 yuan as at 1.33 pm on Tuesday, before recovering later in the day. Its market value has fallen over 70 per cent from the 800 billion yuan achieved during its listing in October, 2020.

Yihai Kerry’s financials have been weak, with gross profit margins falling from 12.3 per cent in 2020 to 5.7 per cent in 2022.

In a filing with the Singapore Exchange on Tuesday, Wilmar said it does not condone any corrupt practices by any of its employees or officeholders. It also noted that its unit Yihai Kerry disagrees with the allegations directed at the company, and will defend its right to protect the legal interests of the company and all shareholders.

Wilmar shares in Singapore were down S$0.03 to S$3.41 as of 3:25 pm on Tuesday.