2014-02-13

Another Busted Trust

China shadow-bank product defaults as coal company can't repay
A high-yield investment product backed by a loan to a debt-ridden coal company failed to repay investors when it matured last Friday, state media reported on Wednesday, in the latest sign of financial stress in China's shadow bank sector.

The product, which raised 289 million yuan ($47.7 million) from wealthy clients of China Construction Bank (CCB) , China's second-largest lender, was created by Jilin Province Trust Co Ltd and backed by a loan to a coal company, Shanxi Liansheng Energy Co Ltd.

"It matured on Feb. 7, but CCB passed on an announcement from Jilin Trust saying 'We currently can't be certain when (Liansheng) funds will be returned,'" the official Shanghai Securities News quoted an unnamed investor in the trust product as saying.
This trust and the one before it are tied to the coal industry in Shanxi province.

In another few days, the latest report on trust fundraising will be out. The banking sector is seeing inflows from other products (such as Alibaba's Yu E Bao), but the trust/shadow-banking sector is undergoing a fantastic contraction and that will hit overleveraged sectors of the economy.

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