CITIC Guoan Isn't Paying Its Bills

I saw a Chinese headline this morning about Bank of Beijing having to make good on its credit guarantee of Citic Guoan. I did a search for news in English and didn't find anything yet, but did find they also triggered a credit guarantee in March, have a real estate "property-tech" subsidiary accused of not paying their bills and they were aggressive in taking stock-pledged loans. Citic Guoan is separate from Citic, but the latter still has a substantial stake in the company.

March, Caixin: Bank of Beijing Stuck Making $5.81 Million Payment on Debt It Guaranteed

Bank of Beijing has had to pay some 39 million yuan ($5.81 million) in interest on behalf of Citic Guoan Group Co. Ltd., as it serves as guarantor of 2.5 billion yuan of the company’s debts.

The lender said in a stock exchange filing that it signed off as guarantor for the principal and interest from Citic Guoan’s 2.5 billion yuan debt investment plan to finance the renovations of some old buildings in the capital.

June, Mingtiandi: LANDLORDS ACCUSE CITIC-BACKED PROPTECH PLATFORM OF NOT PAYING RENT

China’s property innovators are hitting the headlines again this month as a property marketing and management platform tied to one of the country’s biggest investment conglomerates is reported to have defaulted on its financial commitments.

A long-term rental housing business operated by Guoan Family, an affiliate of state-linked CITIC Guoan Group, has been accused by landlords of not paying rent on the apartment that it leases to tenants, according to an account by the local media.

Today, Caixin: 中信国安25亿债权违约 担保方北京银行全额埋单
(Bank of Beijing, the guarantor of citic guoan's 2.5 billion creditor's rights default, pays the full bill)

Citic Guoan Group's 2.5 billion yuan debt default was eventually "paid" by advances from the guarantor Bank of Beijing. On the evening of June 21, the bank of Beijing (601169.SH) issued a notice announcing that it would fulfill its guarantee responsibility for all principal and interest.

The Bank of Beijing said that after the advance under the guarantee, the guarantee business was terminated, but this did not mean the formation of final losses. At present, the Bank of Beijing has taken a number of asset preservation measures for the business. The book value of the preserved assets can cover the risk of the advance, which has played a role in mitigating the risk of the business. The Bank will fully safeguard the legitimate rights and interests of the bank through recovery from the debtor and other means.

The 2.5 billion yuan debt plan of CITIC Guoan Group has a total of five years. The original maturity date is 2020 and the annual interest rate is 5.6%. CITIC Guoan Group has previously promised to pay interest on a quarterly basis. The source of repayment is the comprehensive income of CITIC Guoan Group. The 2.5 billion yuan will be used for land removal, shareholder loan repayment and supplementary working capital for the cotton patch rebuild project in citic guoan.

The initial credit report issued by United Credit Rating Co., Ltd. shows that the credit rating of the return right of the investment plan is AAA, and the credit rating of the debt paying subject is AA+. The Bank of Beijing has provided it with an unconditional and irrevocable joint and several liability guarantee for the full amount of principal and interest.

However, in the first quarter of this year, an insurance asset manager told Caixin that his 2.5 billion yuan insurance asset management debt plan held by CITIC Guoan Group could not pay interest. The bank of Beijing, as the guarantor, paid 39.453 million yuan in interest on behalf of citic guoan after negotiation. (See Caixin.com's report "Citic Guoan Group's 2.5 Billion Credits Owe Interest Will Bank of Beijing Pay? 》）

It is worth noting that the creditor's rights investment plan has an accelerated maturity clause. If CITIC Guoan Group fails to pay interest on the investment funds within six months from the first interest payment date (March 12), the creditor's rights investment plan will mature ahead of schedule, with the maturity date being September 3, 2019.

According to the latest announcement of the Bank of Beijing, on May 27, 2019, the creditor's rights investment plan will expire ahead of schedule after being voted by the beneficiaries' meeting under the plan. On June 20, due to the failure of CITIC Guoan Group to make its own payment, Bank of Beijing, as the guarantor, voluntarily fulfilled its guarantee responsibility for all principal and interest according to the terms of the guarantee. "Under this business, the Bank voluntarily fulfilled its guarantee obligation, which is conducive to locking up risk exposure and pursuing recovery from the debtor in accordance with legal provisions and relevant legal agreements".

Since 2019, the turmoil in citic guoan has continued. On January 7, a debt dispute between CITIC Guoan Group and Beijing Zhongguancun Bank led to a court freeze of 300 million yuan. On January 10, citic guoan MTN004 plunged sharply, almost halving. In addition, creditors have applied to the court to freeze the assets of CITIC Guoan Group for preservation. (See "citic guoan's Troubled Group Executives Trapped in Vortex" for details).

Citic was heavily involved in making stock pledged loans:

In the successive crises, citic Guoan group, on the one hand, tried to coordinate its relationship with creditors in the hope of reaching a settlement, and on the other hand, it sent a distress signal to the original major shareholder China citic group co., ltd. Before the Spring Festival in 2019, CITIC Group had already reported the situation of CITIC Guoan Group to the Ministry of Finance. Subsequently, CITIC Group set up a high-level working group to deal with the problems of CITIC Guoan Group. The reorganization is imminent. (For details, I heard that "it is difficult for the citic guoan storm to be leveled and CITIC Group to help it out").

At present, there are three A-share listed companies under CITIC Guoan Group, including citic guoan (000839.SZ, holding 36.44% of shares, with a cumulative pledge of 99.37%), Baiyin Nonferrous (601212.SH, holding 32.27%, with a cumulative pledge of 99.89%), and Citic Guoan Wine (600084.SH, holding 32.72%, with a cumulative pledge of 89.15%), most of which have been pledged. On June 21, citic guoan closed up 2.61% at 4.32 yuan/share, Baiyin Nonferrous Metals closed up 1.50% at 4.74 yuan/share, and ST Citic Guoan Wine closed up 4.89% at 2.36 yuan/share

Bloomberg: China Looks for a Savior in the Shadows

Beijing has invited non-bank financial institutions to play a larger and more formal role in the aftermath of the first regulatory takeover of a commercial lender in two decades. Interbank rates have ballooned since the seizure of Baoshang Bank in late May, raising funding costs for financial companies. This week, the central bank asked its biggest state-owned banks to support large brokerages such as Citic Securities Co., Huatai Securities Co. and China International Capital Corp

...As a cash crunch looms, it’s worth asking why the central bank suddenly cares about brokers’ funding channels. Citic Securities, for instance, has only 673 billion yuan ($93 billion) in assets, in line with a mid-size regional bank. It’s also questionable whether brokers deserve bigger credit lines, considering their aggressive over-the-counter margin financing helped engineer the stock market’s spectacular boom and bust four years ago.

...When money is tight, company founders often pledge their shareholdings in exchange for loans from securities firms. This is a unique feature among China’s brokers, with trillions of yuan of such loans outstanding. Citic Securities, for instance, expanded this business to 25.9% of its total equity at the end of 2018, while smaller brokers such as Everbright Securities Co. more than doubled such loans since 2016.

Reuters: Citic Guoan Wine Says Controlling Shareholder's 34.5% Stake Frozen By Court To Date