China $160 mln investment vehicle misses four scheduled payments, as fears grow that potential financial sector defaults could roil markets in the world’s second-biggest economy

February 19, 2014 Leave a comment

Updated: Friday February 14, 2014 MYT 4:05:51 PM

China $160 mln investment vehicle misses payments

SHANGHAI: A US$160mil investment vehicle sold by China’s second-largest bank has missed four scheduled payments, state media reported, as fears grow that potential financial sector defaults could roil markets in the world’s second-biggest economy.

The “Songhuajiang River No.77” product, which raised a total of 972.7 million yuan (US$160mil) in six tranches, had failed to repay investors’ capital and interest four times by early February, the 21st Century Business Herald reported late Thursday.

Investors were also informed by Jilin Province Trust, which structured the product, that they will not receive the fifth payment due on February 19, according to the report.

China Construction Bank promoted the scheme, which funded a coal company, as a “risk-free and high-yield” investment, promising annual returns of 9.8 percent, investors told the paper.

The news comes after a possible default on a $500 million investment product, sold by the country’s largest bank ICBC and also backed by a loan to a debt-ridden coal firm, was averted in late January just three days ahead of deadline.

Analysts worry that China likely faces further problems in the trust sector.

A total 5.3 trillion yuan worth of trust products will mature this year, up 50 percent from 2013, state media have reported, citing research from Haitong Securities.

Default on such investment products would send a shockwave through China’s multi-trillion dollar “shadow banking” system – a massive network of lending outside formal channels – in the world’s second-largest economy, analysts said.

With the “Songhuajiang River No.77” product, the coal firm it was supposed to fund, Shanxi Liansheng Energy, filed for bankruptcy reorganisation in November last year after incurring around 30 billion yuan of debts.

“As far as we know, there’s no problem with the firm’s assets. The firm is negotiating with investors,” 21st Century Business Herald cited Jilin Province Trust as saying.

“We are all very anxious,” the official Shanghai Securities News on Wednesday quoted an investor as saying ahead of the February 19 maturation.

Neither the coal firm nor China Construction Bank could be reached for confirmation by AFP, while Jilin Province Trust declined to comment.

Despite mounting default risks, China’s trust sector has proliferated on the back of strong investor interest as such products often promise much higher returns than traditional bank deposits.

The country’s trust assets surged 46 percent to a record 10.9 trillion yuan in 2013, industry group China Trustee Association said Thursday in a statement. – AFP

 

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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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