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Default risks worry China's trust sector

(Xinhua) Updated: 2014-02-20 13:57

Default risks worry China's trust sector

Dozens of repayment crises were made public by media reports in 2013. Many of them were related to investments in the coal industry.


BEIJING - The failure of a major trust program to repay investors at maturity on Wednesday has alerted the sector to default risks after years of feverish "gold rush."

Jilin Province Trust, which raised 972.7 million yuan ($159.5 million) to invest in Shanxi Liansheng Group, informed its clients that it had no repayment timetable as the debtor itself is mired in debt.

Shanxi Liansheng Group, one of the biggest private miners in coal-rich Shanxi province, owes over five billion yuan to six trust companies.

In January, another major trustee, China Credit Trust, just managed to repay three billion yuan of principals invested in another Shanxi-based coal miner. But the interest is yet to be paid.

The two trust firms are not alone. Dozens of repayment crises were made public by media reports in 2013. Many of them were related to investments in the coal industry.

The lucrative coal and construction sectors are most appealing to China's trust funds. But the Chinese government's string of cooling measures have curbed investment in construction.

Meanwhile, ownership of mines is much more complicated than that of land, and is therefore prone to legal conflict. The assessment of mines is also uncertain, given that mine deposits are usually indeterminate.

China Orient Asset Management Corporation said in a recent report that trust companies' investment in the coal sector is the most vulnerable to risks as an economic slowdown has slashed coal prices, which were once soaring.

Nearly 16 billion yuan of collective trust programs investing in mineral resources will come to maturity in 2014, according to data released by the China International Capital Corporation.

"Our target this year is to secure repayment, instead of boosting capital scales like before," a senior trust manager told Xinhua on condition of anonymity, adding that the trustee had intensified inspections of projects it invests in.

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