Trust Company Forced to Repay Investors Out of Own Pockets
August 14, 2013 Leave a comment
08.13.2013 16:57
Trust Company Forced to Repay Investors Out of Own Pockets
Shaanxi International forks over nearly 600 million yuan of its own money, then asks court to seize collateral behind failed offering
By intern reporter Liu Zhuozhe
(Beijing) – A trust company says it used its own money to buy a trust product back from investors after the issuing firm fell behind on repayments. Shaanxi International Trust Co. Ltd. (SIT) said on August 12 it spent 597.9 million yuan acquiring outstanding units of a trust product sold in two phases by Henan Yufeng Compound Fertilizer Co. Ltd. in 2012. Yufeng started falling behind on payments in December. The final payment of the first phase, which had an interest rate of 18 percent, was due in April. The second phase (16.2 percent) came due in July. SIT said it asked Xian Intermediate People’s Court to seize Yufeng’s assets, including land and office buildings it used as collateral to issue the trust product. It is unclear how SIT will dispose of the assets.
Citic Trust Co., the nation’s largest trust company by asset value, was caught in similar troubles after a company in Sichuan Province that made paint coating for steel products missed a payment in mid-January.
Citic delayed payments to investors and went after the company’s collateral, planning to sell it at auction. The trust plan was taken over by an anonymous institution in April before the auction.
SIT will probably seek to sell Yufeng’s collateral as well, an analyst said. Unlike Citic, however, it ensured that investors received their payments on time by digging into its own pockets, he said.
It is common for trust companies to use their own money to buy trust products from investors when the issuing company cannot keep up with debt repayment, an executive at a large trust company said.
This would help explain why no one in China has ever lost money on a trust investment. In the worst cases, payments are only late, but still within a grace period set out in contracts, as was the case with Citic.
By the end of 2012, the combined assets of the country’s trust sector was 7.4 trillion yuan, second only to the banking industry.
About bambooinnovator
Bamboo Innovator 