Trust Company Forced to Repay Investors Out of Own Pockets

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
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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