He lent it, Wei got it, but who has it now?

While Zheng He is in Australia, the business which made the loans is in China, the accused 'theif' is dead, and the other director said to be involved in the suspect loans, Wei, is also in China.

(Sydney Morning Herald) – While Zheng He is in Australia, the business which made the loans is in China, the accused ‘thief’ is dead, and the other director said to be involved in the suspect loans, Wei, is also in China.

AUSTRALIA’S relations with Malaysia may be tested again if the corporate watchdog pursues claims that a former Malaysian government minister, Dato Tan Tian Hong, took more than $20 million from an ASX-listed company to repay a personal debt.

The now suspended, China-based credit guarantee company Zheng He Global Capital told shareholders this week that Tan, who died last year, used his position as executive chairman to organise secret 136.79 million yuan ($A21 million) loans to 10 companies associated with fellow Zheng He director, Rong Cheng Wei.

Zheng He’s acting chairman, Andrew Smith, who has spent this year trying to unravel what happened, believes that the loans were designed to use the public company’s cash to repay $US18.8 million borrowed by Tan from Wei in April 2010 to facilitate Zheng He’s public float.

Tan might be out of reach, but Smith has sent letters of demand to his deceased estate in Malaysia.

Fascinatingly, around the same time as Smith’s lawyers were drawing up those demands, Tan’s widow Catherine used her family’s 55.3 per cent shareholding in Zheng He to demand the appointment of four new directors to the existing three-person board.

With no hope of beating that board challenge, Smith yesterday afternoon bowed to the inevitable and convened a board meeting, agreeing to the new appointments.

It will be interesting to see whether they decide to continue legal action against the Tans. Insider suspects that investors in Zheng He can kiss that money, and probably their investments, goodbye.

Smith, though, may have bought them some insurance. Insider hears that he met yesterday morning with representatives of the Australian Securities and Investments Commission and provided them with a detailed file on all the events.

ASIC’s difficulty is going to be that while Zheng He is in Australia, the business which made the loans is in China, the accused ”thief” is now dead, and the other former director said to be involved in the suspect loans, Wei, is also in China. Insider understands that neither Tan nor Wei have assets in Australia, apart from Zheng He shares.

The political thorn for ASIC chairman Greg Medcraft will be that Tan was a respected leader of the Malaysian Chinese Association political party, and served as a Deputy Finance Minister and Deputy Minister in the Prime Minister’ office under former Malaysian strongman Dr Mahathir Mohamad. Dr Mahathir and his wife attended the funeral.

The Zheng He loans story does not, however, end there. Rongcheng Wei’s companies, according to Smith, defaulted on all the loans – leaving Zheng He indebted to the banks last August. Smith said that in a recent meeting with Wei ”he confirmed that, as a consequence of the defaults under the finance arrangements, the … loans had now been repaid in full”.

In Zheng He’s prospectus Wei was not only credited with playing a role in the financing of Zhouning County’s public welfare system, he was awarded ”the Excellent Entrepreneur award from Zhouning County’s police force from 2003 to 2006”.

Tan’s widow, Catherine, signed an agreement last August taking responsibility for the loan defaults, according to Smith, and the deposit around that same time of $RMB140 million ($A44 million) into Zheng He bank accounts, by two China-based companies associated with a Lin Liang, were assumed to be the product of that agreement.

In February this year a routine audit found that the cash was no longer in the company’s bank accounts, having been withdrawn on the authorisation of Lin (who had been appointed chairman of Zheng He’s China subsidiary).

Smith’s investigation in recent weeks discovered that Lin believed his companies had only ever been lending the money to Zheng He, and had taken it back.

The deal appears to have been a little more complex than that, though, because the money was moved into Zheng He accounts near the end of each month, and out again at the beginning of the following month – meaning that Zheng He’s bank statements each month would always show that the money was there, but in reality it was being used by Lin’s companies.

Post-float stumble

DAVID Zohar, whose Aluminex Resources lasted less than a fortnight as a public company, finally appeared in a Perth court last Friday charged with three counts of making false and misleading statements to the market about the float.

Insider, in another guise, awarded Zohar and Aluminex way back then in October 2008 the Britney ”Oops, I did it again” Spears Award for a post-float stumble. Aluminex shares were offered at 40¢, but never traded above 15¢ – and the company ended up having to return the subscriptions to investors.

Zohar has yet to enter a plea on the charges, each of which carry a maximum two year jail penalty, and was bailed to return on August 15 for another mention.

Insider thinks it might be a line ball on who wins in this case, because Zohar is clearly a man of determination.

He still has seats on the boards of five listed companies of which Insider is aware – Iron Mountain Mining, Eagle Nickel, Red River Resources, United Orogen and Actinogen – all of which advised the market a month ago of the pending charges.

Even better though is that Zohar never gave up on Aluminex. In 2009 he had Iron Mountain make an obviously off-market one-for-one share swap takeover offer for the company.

Given that he, wife Julie and daughter Shoshanna (plus family companies) spoke for almost 45 per cent of Aluminex, that arrangement handily increased his grip on the Iron Mountain from 5 per cent to more than 25 per cent. The next year there was an attempt to buy out option holders in Aluminex, and the Zohars were big there too.

Only yesterday, the Zohars revealed they were still buying shares in a couple of his listed vehicles, suggesting that they are confident he has a defence to ASIC’s charges.

Insider can only wish ASIC good luck In pursuing someone with that kind of chutzpah.