China Takes Page From Elliott Playbook, Seizes Japanese Ship In Port

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China may be taking a page out of the Elliott Management playbook by impounding a Japanese ship over a legal dispute dating back to the 1930s.  Or more ominously, it could signal the first in a series of moves by China to take control over the Senkaku islands much in the same way as Russia has taken control over Crimea in Eastern Europe.

Japan says seizure is “war reparations,” China says individual dispute

At issue is China’s impounding the Baosteel Emotion, a ship designed to carry iron ore owned by Japan’s Mitsui O.S.K. Lines, Ltd. (TYO:9104) (OTCMKTS:MSLOY). The ship was seized in the eastern Chinese province of Zhejiang with the legal justification based on a Shanghai Maritime Court ruling in a dispute dating back to the 1930s, the first such incident of its kind involving China and Japan.

China had agreed to forgo war reparations on a nation state basis

While China signed a war reparations agreement with Japan forgoing claims, China says the seizure has nothing to do with war reparations while Japan disagrees.  In an issue that could set worrisome legal precedent for Japanese companies doing business in China, China claims this is a dispute between an individual company and specific Chinese citizens. Mitsui O.S.K. Lines, Ltd. (TYO:9104) (OTCMKTS:MSLOY) operated in China during World War II and is not subject to an agreement between nation states, the Chinese court ruled.  The lawsuit stems from a group of Chinese citizens who claim they were used as forced labor by Mitsui O.S.K Lines Ltd during the war now seeking reparations from the company that they claim exploited them.

The seized ship in question is valued at $92 million and capable of carrying up to 226,434 tones of iron ore, according to a report in the Wall Street Journal.

Is China following the Elliott precedent?

The concept of seizing assets as they dock in port is not without precedent.  As previously reported in ValueWalk, NML Capital Ltd, a unit of Elliott Management Corp., is suing Argentina in California to seize two satellites the country is planning to launch into space.  Elliott had previously attempted to repossess an Argentine naval vessel and separate investors attempted to seize the Argentine president’s plane as it was refueling.  Elliott is operated by activist hedge fund manager Paul Singer.  The dispute between the government of Argentina and Elliott dates back to the country’s 2001 default on $80 billion in privately held debt, and the US Supreme Court hears the case today.



About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com