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Released November 08, 2022 | GALWAY, IRELAND
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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland)--The second largest aluminum extrusion company in the world, China Zhongwang (Liaoyang, China)), has filed for bankruptcy with massive debts estimated at US$64 billion.
Creditors have succeeded in getting the green light from a court in Shenyang to start bankruptcy proceedings against the company. It is estimated that the company's assets are worth less than half of its debts. The company confirmed that it had been notified that its 252 global affiliates and parent would enter consolidated restructuring, since it would not be able to pay its debts. In recent years, the company has seen its market capitalisation fall from a high of US$3.8 billion in 2019 on the Hong Kong Exchange to US$1.1 billion in 2021 when share trading in the company was suspended.
"The collapse of Zhongwang was shocking but not surprising to people in the commodity industry," said Eugene Weng, a Shanghai-based attorney at the firm Wintell & Co., speaking to the Financial Times. "Volatility in the global commodity market this year and the company's poor corporate governance are the straws that broke the camel's back." Weng added that a lack of proper corporate oversight by Beijing contributed to the downfall. "The fall of Zhongwang is the failure to crack down on these alleged self-financing activities. Such practices are a ticking time bomb and can hardly be tolerated by Chinese courts. However, the bankruptcy has exposed the weaknesses of the conglomerate business model that Zhongwang pursued, and its collapse has hit many contractors and creditors. Liquidating assets could also prove difficult, given manufacturing has been weakened by China's strict zero-Covid policy."
Industrial Info is tracking 12 of the company's main plants and a number of billion-dollar projects that may now never proceed. The court-ordered restructuring will attempt to "preserve the aluminum supply chain built and achieved by the 253 Zhongwang entities."
The company, started by Liu Zhongtian in the early 2000s, had extended its expansion outside of Asia with the takeover of Germany's Aluminiumwerk Unna in 2017, which gave it a foothold in the aerospace sector. It also tried and failed to purchase American aluminum firm Aleris International Incorporated (Lewisport, Kentucky) for US$1.1 billion via its Zhongwang USA, LLC, subsidiary. At the time, the deal was undermined by national security concerns raised by the Committee on Foreign Investment in the U.S..
Most recently, the company was the subject of a negative ruling by a U.S. Department of Justice (DOJ) investigation into a scheme by Zhongwang to send semi-finished aluminum into the U.S. in the form of pallets. In August, the DOJ ordered six Southern California companies--owned by Zhongwang--to pay $1.83 billion in restitution for participating in a conspiracy to defraud the U.S. The scheme saw huge amounts of aluminum--disguised as pallets to avoid $1.8 billion in customs duties--exported to the U.S. where they were allegedly "sold" to fraudulently inflate the parent company's revenues and deceive global investors.
The DOJ stated: "The aluminum sold to United States-based companies controlled by Liu was simply aluminum extrusions that were spot-welded together to make them appear to be functional pallets. In fact, there were no customers for the 2.2 million pallets imported by the Liu-controlled companies between 2011 and 2014, and no pallets were ever sold.Liu and his co-defendants orchestrated the bogus sales of aluminum to Liu-controlled companies in Southern California to falsely inflate China Zhongwang's value."
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
Creditors have succeeded in getting the green light from a court in Shenyang to start bankruptcy proceedings against the company. It is estimated that the company's assets are worth less than half of its debts. The company confirmed that it had been notified that its 252 global affiliates and parent would enter consolidated restructuring, since it would not be able to pay its debts. In recent years, the company has seen its market capitalisation fall from a high of US$3.8 billion in 2019 on the Hong Kong Exchange to US$1.1 billion in 2021 when share trading in the company was suspended.
"The collapse of Zhongwang was shocking but not surprising to people in the commodity industry," said Eugene Weng, a Shanghai-based attorney at the firm Wintell & Co., speaking to the Financial Times. "Volatility in the global commodity market this year and the company's poor corporate governance are the straws that broke the camel's back." Weng added that a lack of proper corporate oversight by Beijing contributed to the downfall. "The fall of Zhongwang is the failure to crack down on these alleged self-financing activities. Such practices are a ticking time bomb and can hardly be tolerated by Chinese courts. However, the bankruptcy has exposed the weaknesses of the conglomerate business model that Zhongwang pursued, and its collapse has hit many contractors and creditors. Liquidating assets could also prove difficult, given manufacturing has been weakened by China's strict zero-Covid policy."
Industrial Info is tracking 12 of the company's main plants and a number of billion-dollar projects that may now never proceed. The court-ordered restructuring will attempt to "preserve the aluminum supply chain built and achieved by the 253 Zhongwang entities."
The company, started by Liu Zhongtian in the early 2000s, had extended its expansion outside of Asia with the takeover of Germany's Aluminiumwerk Unna in 2017, which gave it a foothold in the aerospace sector. It also tried and failed to purchase American aluminum firm Aleris International Incorporated (Lewisport, Kentucky) for US$1.1 billion via its Zhongwang USA, LLC, subsidiary. At the time, the deal was undermined by national security concerns raised by the Committee on Foreign Investment in the U.S..
Most recently, the company was the subject of a negative ruling by a U.S. Department of Justice (DOJ) investigation into a scheme by Zhongwang to send semi-finished aluminum into the U.S. in the form of pallets. In August, the DOJ ordered six Southern California companies--owned by Zhongwang--to pay $1.83 billion in restitution for participating in a conspiracy to defraud the U.S. The scheme saw huge amounts of aluminum--disguised as pallets to avoid $1.8 billion in customs duties--exported to the U.S. where they were allegedly "sold" to fraudulently inflate the parent company's revenues and deceive global investors.
The DOJ stated: "The aluminum sold to United States-based companies controlled by Liu was simply aluminum extrusions that were spot-welded together to make them appear to be functional pallets. In fact, there were no customers for the 2.2 million pallets imported by the Liu-controlled companies between 2011 and 2014, and no pallets were ever sold.Liu and his co-defendants orchestrated the bogus sales of aluminum to Liu-controlled companies in Southern California to falsely inflate China Zhongwang's value."
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
