Investors' funds at risk as trust product sold by CCB defaults
Loan to debt-ridden coal firm highlights shadow banking risks as trust works to recover funds
A high-yield investment product backed by a loan to a debt-ridden coal company failed to repay investors when it matured on Friday, state media reported yesterday, in the latest sign of financial stress in the mainland's shadow banking sector.
The product, which raised 289 million yuan (HK$367 million) from wealthy clients of China Construction Bank, the country's second-largest lender, was created by Jilin Province Trust and backed by a loan to a coal company, Shanxi Lianmeng Energy.
"It matured on February 7, but CCB passed on an announcement from Jilin Trust saying 'We currently can't be certain when [Lianmeng] funds will be returned,'" the official Shanghai Securities News quoted an unnamed investor in the trust product as saying.
Restructuring isn’t bankruptcy … there is no problem with the firm’s assets
Though the maturity date has already passed, producing a technical default, Jilin Trust appears to be working to recover investor funds.
"Restructuring isn't bankruptcy. As far as we know, there is no problem with the firm's assets. The firm is in negotiations with investors," the paper quoted an unnamed official of the trust company as saying.
Chinese markets were on edge last month when the vendor of a similar product created by China Credit Trust warned investors that it might not pay off on time when it matured on January 31. That product was also based on a loan to an indebted coal producer in Shanxi.
In the end, however, investors in China Credit Trust's Credit Equals Gold product recovered their principal when an unnamed investor stepped in to purchase collateral assets.
However, in this case, default has already occurred, the paper said.