Japanese, Korean banks take brunt of Gitic closure
Japanese and Korean banks account for nearly half of bank loans and guarantees owed by the collapsed Guangdong International Trust and Investment Corp (Gitic) and its Hong Kong subsidiaries, it has emerged.
The most active lenders in Asia lent a combined US$649.9 million to Gitic companies, or about 46 per cent of a total US$1.41 billion estimated by local debt market newsletter Basis Point .
The figure is in line with the Hong Kong Monetary Authority's revelation of HK$11 billion in direct exposure and contingent guarantees by more than 80 banks in Hong Kong.
Basis Point's calculation excludes at least $3.5 billion in loans primarily to Gitic's Hong Kong offshoots which are not registered with the mainland's State Administration for Foreign Exchange (SAFE). The figure also does not take into account repayments made.
The newsletter calculated the figure based on information from 127 banks.
The single biggest lender is Dai-Ichi Kangyo Bank (DKB), which lent Gitic US$61.27 million in three deals, including guarantees.
The first deal saw Gitic act as a guarantor for $750 million in project financing for the Shajiao C Power Station in Guangdong province, of which DKB shared $42.77 million.
The Japanese bank lent $3.5 million to Zhongshan Jai Fa Electric Power in a term loan of $60 million, guaranteed by Gitic. It also lent Gitic $15 million.
Dresdner Bank of Germany was the second-biggest lender with $60.75 million in two deals, followed by the Bank of China with $51.57 million in three deals.
Gitic's closure has thrown into doubt whether its interest payments will be made on time, which could affect confidence in future overseas debt issues by the mainland government and related companies, according to Standard & Poor's director Lincoln Chan.
Interest payments on one of Gitic's three rated bond issues would be due next week, Mr Chan said.
'The problem for bondholders is more acute than bank creditors because the bonds are traded in the market and are held by numerous investors,' he said.
The People's Bank of China [PBOC] had suspended debt service payments for Gitic until January 6 for creditors to register their claims.
Mr Chan said Beijing should handle the issue carefully, or it would risk affecting the ability of the Chinese Government and its commercial arms to issue debt in international markets.
He urged the PBOC to clarify repayment details for Gitic as soon as possible to avoid unnecessary speculation.
It also had to address the issue of interest payments.
Many are monitoring the development for clues on how the central bank will handle similar closures in future.
The PBOC closed Gitic on Tuesday last week.
It has so far had one meeting with foreign creditors at which the central bank failed to provide any details on debt repayment.
The PBOC said priority would be given to repayment of foreign debts registered with SAFE and legal deposits by individuals, raising concerns that bank creditors might face losses on unregistered debt.
THE HANGOVER US$649.9 million lent to Gitic companies HK$3.5 billion went to Gitic's HK offshoots Biggest lender was Dai-Ichi Kangyo Bank
