China Shadow Lender Makes Plans to Recoup Loan

January 19, 2014 Leave a comment

China Shadow Lender Makes Plans to Recoup Loan

LINGLING WEI

Jan. 17, 2014 6:32 a.m. ET

BEIJING—A standoff is brewing in China, as an asset management firm that had used the country’s largest bank as its agent seeks avoid setting a loss-making precedent among shadow lenders in connection with a loan-gone-bad made to a coal miner.China Credit Trust Co., the shadow lender—a term used to describe nonbank lenders in China—raised 3 billion yuan ($495 million) from customers of state-controlled Industrial & Commercial Bank of China Ltd. 601398.SH -0.58% and lent it to a little-known coal-mine operator in northern China’s Shanxi province, Wang Pingyan. The farmer-turned-entrepreneur, whose financial problems first came to light in 2012, has been detained by authorities and couldn’t be reached for comment.

China Credit told investors this week that it may take legal action to recoup the loan as it comes under growing pressure to avert what could be the first loss for investors in a key part of China’s vast but loosely regulated shadow-banking sector

In a notice to investors dated Thursday and reviewed by The Wall Street Journal, China Credit, one of the country’s biggest nonbank providers of credit, said it is “not yet certain” whether investors in the 3 billion-yuan loan product would be repaid when it matures at the end of this month. The firm said it may “resort to legal means against related parties” to protect investors’ interest.

People close to ICBC reaffirmed its 2012 statement to the Journal that according to Chinese laws, agent banks “are not responsible for investment risks” associated with those private loans. It also said the bank has “strictly implemented” its agent agreement with China Credit.

Officials at China Credit declined to comment beyond confirming the notice. It didn’t identify the related parties.

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