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Mercuria's third founder: China head eyes long game

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September 29
1:57 AM 2014

The little known Asia head of Mercuria will be key in tying the Swiss commodity trader's $3.5 billion acquisition of JP Morgan Chase and Co's physical commodity desk into the company's China business.

One of China's first oil traders in the 1980s, Han Jin set up Mercuria's Beijing office at the same time it opened its Geneva headquarters in 2004, giving Mercuria what he describes as a "rich color of China" - a focus on the country - from day one.

A long-time friend of Mercuria co-founder Marco Dunand - Han and his young family once lived in Dunand's London apartment - the Mercuria China head is known as a strong relationship builder, who can network with bureaucrats and energy officials.

He was the third active founding director when Dunand and Daniel Jaeggi set up the commodities firm, now looking to challenge metal trading giants such as Glencore Plc (GLEN.L) and Trafigura AG TRAFGF.UK.

"Where we differentiate from our competitors is our marathon style race," Han told Reuters by phone from his base in Geneva.

Mercuria, already the largest foreign importer of fuel oil to China, has been positioning itself for further liberalization of China's oil markets.

Mercuria has pledged to spend 9 billion yuan ($1.5 billion) by 2016/17 to build crude terminals and storage tanks in eastern Shandong province, an investment unmatched by competitors, betting that the facilities will be in hot demand when the market opens.

Han says the trader will be able to leverage JPMorgan's strength in gas and power markets in North America after the closing of the deal in the next few weeks to boost its growth.

"This acquisition will strengthen Mercuria China's crude oil, LNG and metals business," Han said.

His near-term plans include bringing to China JPMorgan's Henry Bath & Sons Ltd metals warehousing firm, a prize asset with facilities from Singapore to Rotterdam.

The move would follow an alleged financing fraud at China's Qingdao port that has left banks and traders, including Mercuria, exposed to at least $930 million in losses.

The alleged scam - in which a Chinese trading firm is suspected by local authorities of fraudulently using a single cargo of metal as collateral for multiple loans - has shaken the confidence of banks and merchants in Western metals storage firms that rely on local agents to oversee warehouse operations.

EARLY FRIENDSHIP

Han first met Dunand in the winter of 1991, at a hunting party on a Scottish farm. Han, then 27, was opening a crude oil trading desk in London for China's monopoly oil trader Sinochem. Marco, then 29, was a diesel trader at Goldman Sachs (GS.N).

The son of a language professor, he was among a five-person team tasked with setting up China's first overseas window to tap global oil supplies beyond traditional exportersIndonesia and Oman. The move was well-timed. Three years later, China became a net crude oil importer.

Former acquaintances and colleagues describe Han as a creative trader, a pioneer who established China's oil business with socialist bloc nations such as the former Yugoslavia, as well as Taiwan, which Beijing regards as a renegade province.

To break into the Taiwan market back in 1992, Han hired Peter Rage, a Swedish national and oil broker, to be Sinochem's point man to liaise with Taiwan's Chinese Petroleum Corp (CPC) and Formosa. Sinochem, a top lifter of Iraqi oil during the first Gulf War, later became Taiwan's leading crude supplier.

In 1998, he left Sinochem for family reasons but stayed in London, casting around for work until he followed Dunand and Jaeggi to U.S. utility Sempra Energy, which was setting up a European energy desk.

"Han was out of a job for nearly half a year and couldn't afford a decent place for the family in London," said a Beijing-based executive who has known Han and Dunand since 1991.

It was Dunand, then a well-established trader, who took him in and offered Han and his family accommodation in his six-room flat in London.

"We are not only business associates, but also personal friends," said Han. "That is why we have very deep trust in each other."

He declined to give details of his stake in Mercuria, which last year posted record revenues of $112 billion and an estimated $400 million profit.

WELL CONNECTED

"Han is a super smart person, very well connected, thanks to his early days in London where many top government officials stopped by as a liaison point," said Gao Shan, a retired executive at Sinochem.

Mercuria has expanded in China faster than older and bigger rivals, traders who know Han say.

Han was behind a three-year deal for Mercuria to supply top refiner Sinopec Corp (0386.HK) with about 132 million barrels of Russian Urals crude from 2006, a significant deal for the time for an upstart trader, said a former acquaintance.

He also gives Mercuria's China-based trading staff more freedom to execute transactions than rivals whose China offices are mostly for information gathering and marketing.

While some competitors have criticized the strategy as over-aggressive and prone to unwanted risk, Li Xinhua, Mercuria China fuel oil chief says the day-to-day risk control is carried out by Han's long-time associate and China President Zhu Hong.

"Zhu is a highly meticulous character," said Li. "Han is like a galloping horse, a man of imagination...They complement each other."

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