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.
Kept the contract in a shell company to wall off liability, but Goldman claimed $80M and the stock fell 66%.
Nanshan signed a KODA accumulator with capped upside ($30K/month) and effectively unlimited downside — a textbook toxic structured product that no non-financial company should have touched.
The contracts were signed without board approval, shareholder vote, or disclosure to the exchange. The same people who could not evaluate the risk also bypassed every governance safeguard.
When the loss materialised, Nanshan's response was to strip the subsidiary into a shell — a legal manoeuvre that preserved the company but destroyed its credibility with regulators and investors.
If the upside is capped and the downside is open, it is not a hedge — it is a bet. And when the terms are signed in secret, the governance failure is already larger than the trading loss.
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