China Credit Trust begins repaying trust investors after rescue

China Credit Trust started repaying investors in a high-yield product whose threatened failure spurred concern of further defaults and contributed to a sell-off in emerging-market stocks and currencies.

Most clients in Shanghai, Guangzhou and Beijing signed an agreement yesterday to transfer their rights in the 3 billion yuan (HK$3.81 billion) trust to unidentified buyers in exchange for an amount equal to the product's face value, said Chang Feng, a spokesman for an investor group, and Du Ronghai, another investor.

Investors were given until 5pm yesterday to accept the offer.

The bailout offer averted what would have been China's biggest trust default in at least a decade and eased concern that stresses will mount in the US$1.7 trillion trust industry, the fastest-growing segment of the shadow-banking system. The rescue also spurred warnings that investors are being shielded from risks.

"This is surely not a good outcome from a macroeconomic perspective," said Yao Wei, a Hong Kong-based economist at Societe Generale. "If a financial market doesn't even allow defaults, how can there be real market-based interest rates?"

China Credit Trust in February 2011 sold the product, called Credit Equals Gold No1, with an indicated annual rate of return of 9.5 to 11 per cent for different tranches, according to sales documents posted on the company's website. The product, due tomorrow, was structured to raise funds from wealthy investors for a coal miner, which then collapsed in 2012.