ICBC raises spectre of wave of defaults over troubled trust product

PUBLISHED : Saturday, 18 January, 2014, 1:30am
UPDATED : Tuesday, 23 January, 2018, 11:45am

The looming default of a three billion yuan trust product linked to an indebted coal miner is raising the spectre of a wave of defaults of similar high-yielding products with billions more yuan of investments at risk.

Industrial and Commercial Bank of China has rejected calls for a bailout of investors who bought the product at its branches in Shanxi. The product was issued by China Credit Trust and distributed by the banking giant, which has no plans to compensate investors after the coal miner's collapse, a bank official with knowledge of the matter said.

The trust product, which was launched in February 2011, raised 3.03 billion yuan (HK$3.8 billion) for Shanxi Zhenfu Energy Group.

The coal miner has been facing lawsuits since 2012 over illegal fund-raising and other irregularities; most of its mining projects have been suspended. The likely default of the trust product is being viewed as a sign of Beijing's determination to clean up the financial system.

The central government and the regulators would probably allow the product to default, said analysts.

"The central government appears fairly determined to reform the financial system and cut off the implicit guarantee of financial institutions," said Barclays Capital analyst May Yan.

The spotlight on the Shanxi Zhenfu-linked trust comes as concerns mount over similar products tied to other miners in the coal-rich province. Liansheng may default on its 384 million yuan trust product issued in November 2012, China Daily reported last month. Xin Bei Fang said it was unable to pay the expected yield of its 1.3 billion yuan trust product this month, Shanghai Securities News reported.

The net capital of Shanxi Zhenfu after liquidation is thought to be less than 500 million yuan.