Agreement on troubled trust product
Print Edition
China Credit Trust Co and investors yesterday reached an agreement on a troubled high-yielding 3 billion yuan (US$496 million) investment product distributed by the Industrial and Commercial Bank of China.
If no deal had been reached and a default occurred, it would have been a landmark precedent shattering a widespread perception of implicit guarantees on high-yielding investment products in China’s shadow banking sector, market watchers said.
One of the investors surnamed Chen told Shanghai Daily that he was informed by the bank that investors would receive their principal on Friday when the product matures, but not the interest.
Launched in February 2011, the trust product was sold to about 700 private banking customers of ICBC in various places, including Shanghai, Beijing, Zhejiang, Jiangsu, Guangdong and Fujian.
The money was invested in a coal miner, Zhenfu Energy Group, in Shanxi Province.
A product default loomed since the owner of Zhenfu Energy was reportedly involved in illegal fundraising activities and detained by local police in 2012. Most of its mining operations were suspended as the company has been facing lawsuits over several irregularities, according to the quarterly management reports issued by the trust company.
There have been rumors that investors may lose their investment in the trust product. Though it was a non-principal guarantee product, wealth-management products marketed via banks’ networks are deemed to bear an implicit guarantee.
Cooperation between banks and trust companies is common and forms a big part of the shadow banking system in China. Analysts have warned about potential risk shadow banking posed to the financial system.
China’s total outstanding trust loans amounted to 115.5 billion yuan at the end of last year, which accounted for 10.7 percent of the country’s total credit supply.
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