Nanshan Power bet Goldman Sachs on oil — and lost the company

Shenzhen Nanshan Thermal Power (stock code 000037.SZ), a Shenzhen-listed electricity generator, signed two crude oil accumulator options (KODA) with J. Aron, a Goldman Sachs subsidiary, in March 2008. The first contract ran from March to December 2008: if NYMEX crude stayed above $62 per barrel, Nanshan received $30,000 per month. If oil fell below $62, Nanshan paid $40,000 for every dollar below, per month — unlimited downside. A second contract, running from 2009 to 2010, started at $66.50 with even worse terms.

Oil peaked near $147 in July 2008 then crashed to around $40 by the end of the year. Nanshan had collected $2.1 million in the first eight months but faced catastrophic losses as oil plunged. By November 2008, the company owed J. Aron roughly $1.93 million for that month alone. The potential loss over the full contract term was estimated at tens of millions of dollars — several times the company's annual net profit.

Nanshan's management had signed the contracts without board or shareholder approval, and had not disclosed them to the stock exchange. In October 2008, the Shenzhen office of the CSRC opened an investigation. Nanshan scrambled to unwind: it transferred the subsidiary that held the contracts to a shell company it controlled, attempting to wall off the liability. Goldman Sachs later claimed roughly $80 million. Nanshan refused to pay. The stock fell from 8 yuan to 2.75 yuan.