Broken Trust And Bursting Bubbles

From 2011:

Company Profile: Minmetals Grows an Arm
Days after Minmetals Ltd. was established, the Minmetals International Trust Co. Ltd. was officially opened in Qinghai Province. The trust will launch and oversee a mining capital fund, said Ren Zhufeng, General Manager of Minmetals Finance and Chairman of Minmetals International Trust Co. Ltd.

The Minmetals trust will perfect China Minmetals' financial services and become the company's capital platform, said Zhou.

Minmetals created its own trust products and lent to a real estate firm named Rong Teng (or Roten by Google Translate). I didn't find any info on the company from a quick search, except to get hits on this story. A lot of trust money went to real estate developers, and this one is unable to replay 400 million yuan in debt, about $67 million at today's exchange rate.

The amount isn't great, but this story is getting traction because it is a big state-owned firm. It is also a microcosm of the Chinese trust products and what went on from 2009 to 2012. Firms that were seeing their profits sink (such as commodities firms) built real estate or financial divisions which funneled money into real estate. I have been looking for these dominoes to fall for a couple of years, but the rise of shadow banking kept the real estate market humming. Are these looming trust failures a sign of a trend change?

Coverage of SOEs and private firms setting up real estate or financial divisions:
See NYTimes in 2010: State-Owned Bidders Fuel China’s Land Boom
This blog in 2012: Sinopec Sichuan sales office: King of the loan sharks? Usury scandal may be the tip of the iceberg
2011: Pop goes the Chinese real estate bubble
Also 2011: Rising costs destroy profit margins in Wenzhou, firms shift to real estate

Two Minmetals trust stories are below, Google Translated.

Today: Trust major: Minmetals 400 million helpless fallback "Roten Plan"
Still no results, Minmetals Land Trust and Shanghai Roten disputes into Rashomon. January 15, 2013, at 1200 Hongqiao Road, Shanghai First Intermediate People's Court 24 court, the two sides second court. Up to six hours in the original complaint, counterclaim, debates, surveys after the fact, the two sides remain deadlocked, the decision made by the Shanghai First Intermediate People's Court is the court mediation.

At issue is that after the early termination of the Trust Minmetals trust scheme, if there is still the subject of litigation qualifications; 400 million yuan of funds in the trust, the transferee Roten home of 250 million 60% stake in whether equity investments;, and breach of contract subject vest .

According to financial weekly newspaper reporter, Minmetals Land Trust and the Trust Scheme Roten was established in June 7, 2011, because of financing difficulties in the back section, Minmetals Trust in April last year with its own funds to achieve redemption. Since then, the two sides into a morass of complex litigation counterclaim.

Minmetals rigid payment

Two days before the hearing, Shanghai Rong Teng Properties Limited shareholders will be held, the parties to the negotiating table again, the registration of industrial and commercial home based Roten expired on December 31, 2013, the two sides will discuss whether the continuation of the company, but final result is Roten home dissolved.

"Because the full exercise of the powers of Minmetals trust 60% stake, the company finally went to the dissolution." Roten home side believes.

According to Trade and Industry Bureau and the Houses data show Roten Realty was founded in May 2003, the registered capital of only 12 million, the development of the qualification as "tentative", a small part of Songjiang local real estate developers, and financial weekly newspaper reporter combing found their qualification certificates as early as the end of 2011 had invalid business license is also on May 26 last year maturity.

Pursuant to the Trust roadshow materials, "Minmetals commercial real estate investment trust Roten Fund Trust Plan" period of 24 months, the scale of 400 million yuan trust (where a 212 million, two 188 million), the trust assets for the transferee Wing Proton buyers name "Winfoong Square" 3,4 of usufruct and a 60% stake.

Zengxin Terms Minmetals trust set up for this trust plan: to Roten's home "Winfoong Square" one, two shops mortgage, while 40% of home buyers with Roten equity pledge, and 60% equity interest in plans to Minmetals Trust's.

Nevertheless, the program has not as Minmetals wish, "Wing Fung Plaza in 2010 to now deal dismal sales price rose only 10 percent four years, although low, is still not sell." Winfoong Square is currently responsible for sales intermediary agency, told reporters. In fact, according Houses data show WINFOONG Square early in 2007 to get the pre-sale permit, but within the past seven years, but 40% of the number of sets sold, its price is far lower than the surrounding projects.

"There are very few businesses catering approach." Preceding the sales personnel. In view of this, Minmetals Trust on April 3 last year ahead of the end of the trust scheme, according to the financial weekly Minmetals Trust interview reply, the reason for the early termination of "multiple collections still refuses to pay, seriously affecting the Trust plans to implement , can cause the client gains achieved. "

In the same year on April 17, Minmetals Trust completed a one-time allocation of the trust principal and final phase of the plan trust income, and wound up market speculation that Minmetals Trust with its own funds or a third party to complete the payment.

20% of the financing costs

For external sources of funds for the payment of speculation, Minmetals trust in the court said it was "own funds" advance payment is intended to protect the interests of clients, as well as to avoid major social impact.

In this regard, East executives questioned a trust, because the real estate projects involving huge capital, trust company with its own funds paid in advance of the possibility of small, venture capital, etc. may be found to achieve long-term capital gains the right to the transferee. Minmetals Trust subsequent to the financial weekly interview reply also said that "coordination with other funding payment, the project currently has a collection of trusts into a single trust."

Since the beginning of April last year to complete the payment, Minmetals Trust plunged into a long road of recovery, it is understood, Minmetals Land Trust and Roten had reached a three-month extension agreed in early July last year, but Roten introduces home, agreed extension After Minmetals Trust immediately filed a lawsuit to the court in Songjiang month.

And the Shanghai First Intermediate People's Court, the parties still deadlocked, unlike in the Songjiang trial, defendant Roten home again, while counter-Minmetals early termination breach of trust, and request a refund of the Trust to raise fees, and "excess charge The income right. "

Money Weekly (micro-channel public number: moneyweek) reporter learned that, since its inception trust scheme, Roten buyers paid a total of 72,051,448.89 yuan to Minmetals trust funds, including 500 million penalty. Both sides of this part of the funds has been identified as a specific capital gains, that is paid to the principal and interest Minmetals Trust.

The Trust plans roadshow materials displayed, according to the different amounts of investment, investment income between 10.5% -13.5%, but Roten home in order to obtain this financing costs paid much more than that. Market environment shows that in recent years, regulators bundle strictly for real estate loans, such as small developers Xiangrong Teng difficult to obtain loans from banks.

In fact, Roten home in order to obtain this financing, the actual payments to Minmetals trust financing costs up to 20%, "the two sides agreed on the rate of return of 20% in the contract, the higher part of the investment income is based on the trust of people costs and labor are fixed. "trusts Minmetals introduction.

For 20% of the cost of the aforementioned trust executives believe that high, generally less than 15% of the market price, the case of a trust company and financiers have become too radical.

Despite the early termination of the Trust, Roten home still paid 67.05 million yuan income paid to Minmetals Trust. However, 400 million yuan to repay the principal issues in addition, the two sides failed to agree always, after six hours of trial, the court announced the case goes to court mediation.

150 000 000 or 400 000 000

So far things evolve, Minmetals Land Trust and Roten into mutual accusations of Rashomon.

Which trust scheme for product design, the aforementioned Trust senior admitted that although stocks plus bonds designed to avoid the regulatory red line, but its 250 million yuan transferee a 60% stake, and project a 40% stake, two charges, plans to complete and then return the stake design is too complex, the impact of post-operation.

This design also proved to recover assets of the Trust Minmetals adversely. Although the contract has indicated that plans to end the full year and a half earlier, but in a trial in the hospital, Roten home to become masters, think ahead of the end of the program defaults Minmetals, after completion of the program, there is no trust relationship between the two sides, so Roten requirements Minmetals refund the cost of 16.22 million yuan to raise trust and scoping repay 1.5 billion.

Roten's view is that the trust funds of $ 400 million, and 150 million yuan of revenue for the right to acquire 3,4 Winfoong Square, 250 million yuan for the transferee a 60% stake, which belongs equity investment 250 million yuan, It is also because Minmetals Trust insisted at the beginning of the shareholders will not continue operating in Roten, which was caught in the dissolution of the state, the exercise of shareholders' rights performance.

"250 million yuan to acquire a 60% equity considerations of security and increase trust." Minmetals said. It is understood that 60% of the equity is held by former shareholders Yangzhai Roten sisters, but for 250 million yuan is paid in full to Yangzhai sisters, the two sides dispute no less.

In this regard, the aforementioned trust executives believe that the prevalence of early termination plans, trust companies usually requires six months before the expiration of financing party to pay principal and interest, but the termination of the legal or not, need to see the specific contract and liquidation. In fact, Roten in court repeatedly asked Minmetals Land Trust to produce a liquidation report, no response is received.

For the treatment and progress of the case, said Minmetals trust in the judicial process before the end of the inconvenience to disclose any details. "Trust is actually a real estate fund investors in real estate development, real estate development and a greater risk of loss is normal, but the circle of trust has been a rigid payment unspoken rules." Trust senior foregoing description.

For the kind of legal risk "specific assets usufruct Trust", the China Banking Regulatory Commission had proposed regulatory text bipartite who pointed out that although the current laws and regulations do not explicitly prohibited, but the transaction is still a lack of clear legal provisions to support, to carry out such operations if trust not careful, it will be difficult to obtain regulatory support, and may even be restricted.

It seems that Minmetals Trust 400 million yuan of assets recovery road will continue to be road resistance and long.

Roten Minmetals Land Trust 400 million inability to repay debts or the entire purchase Trust
Shanghai Rong Teng Properties Limited (hereinafter referred to as "Roten Land") in mid-2011 through the establishment of trust products borrowing 400 million yuan, when the plan trust products will soon expire, but unable to repay the loans.

"East Real Estate Business Weekly" (hereinafter referred to as "" East real estate "") in an interview that currently issuer Minmetals Trust Trust Trust has been ahead of the end of the program. Insiders revealed that Minmetals trust or use their own funds to honor the project, or to find a way to acquire disk access.

Whether home on Roten inability to pay debts, "East real estate" contacted the general manager of Minmetals Tang Ji Trust Integrated Management Department. Tang Ji did not admit or deny this news, but said, "Minmetals Trust maximize the protection of the interests of investors, as there is no obligation to disclose other details."

$ 400 million in arrears

Roten Realty Trust to borrow this product called "Minmetals Trust - Roten Commercial Real Estate Investment Fund Trust Scheme (Phase 1)", was established in June 7, 2011, a total of 400 million borrowers in two phases million.

Roadshow material shows that the product is the use of funds under the name of the transferee Roten home "Winfoong Square" 3,4 of usufruct and a 60% stake, plans to add value to the trust property, and as a source of trust benefits, according to the terms of the trust document distribution trust benefits to beneficiaries.

As a guarantee, Roten's home "Winfoong Square" one, two shops were pledged to Minmetals Trust, to assess the price of about 1.133 billion yuan; while also accompanied by "Winfoong Square" three, four future sales back of approximately 584 million yuan, 40 percent of home equity Roten pledge, transfer of 60% equity transferred to Minmetals Trust name.

Roadshow information, Minmetals believers will expire in June before Trust Plan Review Roten home repayment of funds, such as when the trust funds are insufficient to repay maturing principal and income, Minmetals Trust will supervise one, two projects Retail sales in order to secure the repayment of funds.

According to informed sources declined to be named said, is when they fall due before the six-month review, Minmetals trust for repayment of funds Roten home of a rigorous examination, found Roten buyers can not afford to repay borrowings Therefore only the early termination of the trust scheme.

April 3, 2013, Minmetals Trust Company website released a "Roten commercial real estate investment fund trust scheme ended early announcement", which means that to fully protect the interests of the client, according to the contract, was April 3, 2013 early termination of the Trust Scheme.

"The Trust Scheme principal and final phase of the trust income in April 2013 after a one-time 3 10 working days allocated to the beneficiary and the Company as the trustee of the trust scheme, will maximize the benefits to the beneficiaries goals, in strict accordance with the trust agreement document carefully deal with the affairs of the trust scheme. "trusts Minmetals said.

The source said Minmetals Trust should have two payment methods, one with its own funds paid in advance; Second, find the disk access party acquired the project.

"It is said that the company is acquired." Wealth manager with Beneficial Trust Network 廖鹤凯 of "East real estate," said.

"East real estate" tried to contact Roten home, leaving the company in the online contact information up to nearly 10 species, but no one answered the phone.

Trust or the entire purchase

Prior to this incident, Roten home as a small-scale developers, is a relatively unfamiliar name.

Shanghai Industry and Commerce Bureau Web site information, Roten Realty was founded in 2003 with registered capital of 12 million. Legal representative called Ma Jianjun.

Public information, Roten Realty Trust's project is currently the only product roadshow material mentioned in the "Winfoong shopping and leisure."

WINFOONG leisure shopping center located in Songjiang District, planning a total area of ​​about 60,000 square meters, total construction area of ​​over 190,000 square meters, including 70,000 square meters of residential and commercial as well as 30,000 square meters of commercial 90,000 square meters of live.

WINFOONG leisure and shopping center sales ineffective perhaps Roten home to repay his debts most important reason.

Online real estate information display, leisure and shopping center made Winfoong sale permit in 2006, the total number of sets 259 sets.

In the past six years, sales of the project is very bleak, and sold a total of 58 sets of shops, sold only a full-year 2012.

Minmetals Trust in advance of the end of the trust scheme and Roten after things have a dramatic scene took place. With policy advice provided to the research center "East real estate," the data show, this year May 24 consecutive days on the 25th, Winfoong leisure shopping blitz turnover reached 200 units, the average transaction price is 9912 yuan / square meter, far lower At the price of other shops in the area. This price is equivalent to seven years ago or even just shopping and leisure Winfoong first transaction price.

Although it is cheap deal, but according to the turnover of the area 61,073 square meters rough estimate, the total amount of turnover reached 605 million yuan.

"It should be the overall acquisition, at this point, just to help pay off debt Roten." Insiders, who asked not to be named, analysis.

Risk aversion

Case developers unable to repay loans trust, Roten home is not the first.

It is reported that Sichuan Trust issued a called "Kingdom Real Estate Investment income right project-specific Capital Trust scheme" trust products to the Kingdom Zhoushan Ocean City Properties Limited issued 100 million yuan of trust loans, Ocean City Kingdom are unable to repay loans. After the disc has received more than 100 million provided by a trust fund to honor projects to undertake a trust loans and mortgage debt and to restructure the party identity and developers involved in the negotiations.

The rapid development of the real estate trust has brought concerns about payment crisis. But the industry view, the risk can not be predicted in advance preventive measures to protect the rights and interests of investors.

"Trust Business development faster, more social concern, the risk of the project, in fact, is the problem of social credit system construction, for example, some people just are not good faith cooperation projects, on foot, and that trust in what ways . "Tang Ji believes that once the payment risk, trust should go to face.

Tang Ji said, trust careful selection of partners, the first will look at the other side of the adequacy of collateral:. "For example, even a small developer, collateral adequacy, liquidity is strong, and their cooperation will trust."

Research Trust, former general manager of Xinhua Xue Tao believes that trust is very strict examination, the likelihood of a substantial risk is unlikely: "Like Roten this case, the developer may be a problem with liquidity in general trust. will go to promptly deal with the problem, to deal with its own funds, or find their own company then set. "

As for how to avoid risks, Xue Tao gives his advice. "Qualification is just one of the factors investigated whether the project is good or bad, and we do a project before, will do a detailed review of the project to ensure that the company's financial clean, no mortgage debt and the legacy of our own funds but also to manage, Well, who lived assets and tubes that take control of risk. "

He believes that the crisis in the real estate trust has been honored in the past: "In the past influenced policy, mortgage real estate sold, bringing insufficient funds, but now the situation has improved, the market recovery is hard to tell what the future, or to see. How to develop the real estate market. "

"2011 was the hottest time of the real estate trust, said before 2013, 2013 to honor certainly a problem, but now, the situation is not much fundamental problems, there are ways to risk their resolve of." Tang Ji added.

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