How The Credit Boom Ends: Chinese Tycoon Who Threw Lavish Wedding Sees Firm Go Bust

Originally posted on December 16. Updated due to English language coverage.

The English media finally picked up the broke coal baron story.

A Chinese Coal Baron Tumbles into Debt
Liansheng Group is the 10th-largest coal company of more than 130 in Shanxi, and the biggest privately owned one, as well as the biggest private company in the province, People’s Daily reported. With the president, Xi Jinping, recently calling for the market economy to play a “decisive” role in China’s future development, its financial fate may be a litmus test for indebted firms, the newspaper seemed to suggest.

“A new Liansheng Group may be able to lead the way in today’s market environment,” it wrote. “In addition, if the restructuring of Liansheng Group is successful, it will explore the way toward a proactive and effective rescue route for companies that are presently in trouble.”

The creditors are many, reported Money Weekly. It cited the company’s lawyer, Zheng Zhibin of Beijing Jindu Law Firm, or King & Wood Mallesons, as saying that debts would be paid in this order: outstanding taxes, workers’ salaries and, lastly, investors. Mr. Zheng was not immediately available for comment.

“Mr. Zheng is known as the best bankruptcy lawyer in China,” the magazine wrote.

Money Weekly said creditors include major banks and trust companies: China Development Bank, Jinshang Bank, Bank of Communications, China Merchants Bank, Huaxia Bank, the Liulin Credit Cooperative, Beijing International Trust, Shanxi Trust, JIC Trust and Jilin Trust.

The Financial Times picks up the trust angle: Coal tycoon’s plight shines light on China trusts
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Trust companies in China are often very demanding in their requirements for physical assets as collateral, but the Liansheng product was backed only by third-party guarantees. Jason Bedford, a former big four auditor who has focused on the Chinese trust sector for the past six years, said he had never seen a product that relied exclusively on third-party guarantees.

“This is clearly very risky,” he said. “If this was fully disclosed in the product prospectus and there is no evidence of mis-selling, then the loss could be passed on to investors.”
Liansheng’s troubles are a reminder of the thin dividing line between China’s banks and its shadow lending industry. The Liansheng loan product sold by Jilin Trust was distributed in part via China Construction Bank, the country’s second-biggest lender by assets.

Banks tell customers they do not guarantee trust products, which offer returns far higher than traditional bank deposits, but buyers often ignore the warnings in the belief they carry the banks’ implicit backing. The Liansheng investment product targeted an annual return of 9.8 per cent.

Oringal post.
If people know about Xing Libin at all, they probably came across this story last year.

Shanxi coal tycoon throws daughter a US$11m wedding
Xing Libin, a well-known coal tycoon in Shanxi, recently drew attention for holding a large expensive wedding and a concert costing 70 million yuan (US$11.1 million) for his daughter.

The website of the Guangzhou-based 21st Century Business Herald reported that Xing's main source of income is operating and leasing coal mines. He spent 80 million yuan (US$12.67 million) to acquire a 100% stake in the state-owned Xingwu Coal Mine in Liulin county of north China's Shanxi province, which has a stock of 1.5 billion tons.

Xing later became the richest man in Shanxi and currently has assets exceeding tens of billions of yuan.

Cut to today (the following article is translated via Google): Luliang richest man collapses Beijing Xing Libin liabilities 20,000,000,000 deep trust (吕梁首富邢利斌负债200亿崩塌 北京信托深陷)
A well-known bubble finally burst of rupture.

For most people, know the Shanxi coal suppliers Xing Libin, because he was in early 2012, in Sanya, Hainan threw 70 million yuan, to the daughter to do his best in a luxurious wedding. After the wedding, about coal's source of wealth, lifestyle, had set off a vigorous discussion.

But for the purposes of financial institutions, the richest man in Luliang, was already a spent force. Coal prices continue to decline, the Lend Lease Group Libin, the situation began to wage arrears. Lend Lease has a lending relationship with the Group's banks and trusts, have started to care about the solvency problem Liansheng.

Two years later, Xing Libin finally admit their insolvency. November 29, Liulin County, Shanxi Province People's Court held a news conference to announce the acceptance of Shanxi Liansheng Energy Limited and its companies, 12 companies under the jurisdiction of the restructuring application. Liulin according to data released by the People's Court, the current financial position of the Group worrying Liansheng, financial liabilities of nearly 30 billion, debt settlement has basically lost the ability, and facing unpaid tax, employee pension insurance, engineering models, materials, equipment, etc. a number of financial issues. Among them, the Lend Lease Group has secured relationships with more than 10 private enterprises, the scale of credit funds owed more than 20 billion.
Translation is obviously poor through Google, but there is no English coverage of this story yet.

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