Chinese authorities are investigating the finances of companies controlled by a mining tycoon who once sought to buy the now-defunct Hummer brand, said two people familiar with the matter.

Li Yan’s companies in western China’s Sichuan province have amassed 10 billion yuan ($1.6 billion) in debt and may not repay all of it, said the people, who asked not to be identified because the case hasn’t been made public.

Li, also known as Suolang Duoji, controls companies including Chengdu-based Sichuan Tengzhong Heavy Industrial Machinery Co., which was set to buy the Hummer line of sport-utility vehicles from General Motors Co. in 2009. The deal collapsed after failing to win approval from Chinese regulators, which stymied Tengzhong’s bid to tap China’s expanding market for passenger vehicles.

Li also founded Chengdu-based Sichuan Huatong Investment Holding Co. and is the major shareholder in Hong Kong-listed China Lumena New Materials Corp., a miner of sulphates used in laundry detergent and glass. Trading of Lumena was suspended March 25 after short-seller Glaucus Research Group published a note alleging that Lumena’s sales are 90 percent less than what it reported in stock exchange filings. Lumena Chairman Zhang Zhigang denied the Glaucus report, according to an April 4 statement on the company’s website.

Investigators are looking into all of those companies as part of the probe, the people said. The Chengdu public security bureau and financial regulators are concerned that the local financial system may face instability if Li’s companies fail to repay their debt, according to the people. Several billion yuan of the 10 billion yuan debt accumulated by Li’s company are bank loans, the people said.

492nd Richest

Li was ranked the 492nd richest person in China with wealth of 4 billion yuan, according to the 2013 Hurun Report.

After reports on Sina, Phoenix and other China media said yesterday that Li had disappeared, Lumena issued a statement denying he had vanished. Zhang, the company chairman, contacted Li the same day and was told everything was normal, according to the statement.

Hours later, an article on the website of the Communist Party-controlled People’s Daily newspaper repeated the claim that Li had disappeared. The report cited two unidentified officials, one from the Sichuan financial regulator’s office and the other from the Chengdu Economic and Information Commission.

China Lumena issued a statement to the Hong Kong stock exchange today repeating Zhang’s statement that he had been in contact with Li.

Exercise Caution

“Shareholders of the company and potential investors are advised to exercise caution when dealing in the shares of the company,” Lumena said in the statement.

A man who answered a call yesterday to a phone number provided on Sichuan Tengzhong’s website and asked not to be identified said the company was operating normally. Asked about Li’s whereabouts, he said he had no information and suggested calling the Chengdu city government. Three phone calls to the same number rang unanswered.

An official from the Chengdu Economic and Information Commission declined to comment when reached by phone, while a man who answered the phone at the Chengdu public security bureau also declined to comment.