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China Daily Mail

China Daily Mail

The aggressive government mandated consolidation of the coal mining industry beginning in 2009 coincided with the darkest days of the world financial crisis. PUDA management either had to become a consolidator, requiring massive additional capital, or else dispose of its coal businesses.

Management, lead by Chairman Ming Zhao, made the decision to pursue aggressive growth by becoming a consolidator. Zhao transferred the ownership of PUDA’s sole Chinese operating entity, Shanxi Puda Coal Group Co. Ltd (“Shanxi Coal”) to himself in 2009 without shareholder approval, according to official government filings. Then, in 2010 Zhao sold 49% and pledged the other 51% of Shanxi Coal to CITIC Trust Co. Ltd, a Chinese private equity fund, for 245 million RMB ($37.1 million). Zhao then recklessly leveraged Shanxi Coal by borrowing 3.5 billion RMB ($530.3 million) from CITIC at an incredibly high 14.5% annual interest rate (including fees) to finance the development of its coal mines. PUDA shareholders were completely unaware…

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