ICBC clients get a chance to recoup trust funds

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br icbc Bloomberg A man exits an Industrial and Commercial Bank of China branch in Guangzhou. The bank's clients say they have been told China Credit Trust has reached an accord that will allow investors to recoup their funds from a troubled high-yield trust, staving off a default that would have roiled markets. Photo: Bloomberg

Investors in a troubled high-yield trust could recoup their funds, Industrial & Commercial Bank of China (ICBC) has said, averting a threatened default that underscored concern over the health of the shadow banking system and contributed to a global emerging markets sell-off.

Rights in the 3 billion yuan (R5.4bn) product issued by China Credit Trust could be sold to unidentified buyers at a price equal to the value of the principal invested, said one investor who cited an offer presented by ICBC and asked to be identified only by his surname Chen.

China Credit Trust earlier said it had reached an agreement for a potential investment and asked ICBC’s clients to contact their financial advisers.

The accord staves off a default that threatened to roil China’s markets and stoke concerns of financial fragility in emerging economies after assets from Argentina’s peso to the Turkish lira plunged last week. The bailout may encourage risk taking by wealthy investors in China’s $1.7 trillion (R18.8 trillion) trust industry even as authorities try to curtail the nation’s debt.

“A default was bound to lead to systemic risks that China is unable to cope with, so in that sense a bailout is a positive step to stabilise the market,” Xu Gao, the chief economist at Everbright Securities, said.

Still, implicit guarantees distorted the market and “delaying the first default means risks are snowballing”.

The Credit Equals Gold Number 1 high-yield product, issued by China Credit Trust and distributed by ICBC to its private banking clients, was structured to raise funds for a coal mining firm that collapsed in 2012. Shanxi Zhenfu Energy Group failed after its owner Wang Pingyan was arrested for illegally collecting deposits.

Investors in the trust product should authorise China Credit Trust to handle the transaction if they wanted to recoup their principal, Chen said, citing the offer document presented by ICBC. China Credit Trust’s statement on its website did not identify the source of funds, or say whether investors would get their money back.

A call to ICBC’s press officer, Wang Zhenning, and two calls to the office of Pei Wei, the manager of the Credit Equals Gold product at China Credit Trust, were not immediately answered. China Credit Trust board secretary Wei Qing also did not comment.

Assets managed by China’s 67 trust companies soared 60 percent to $1.67 trillion in the 12 months to September last year, according to the China Trustee Association, even as policymakers sought to curb money flows outside the formal bank system.

A bailout of the trust product would leave Chinese authorities with a growing problem of moral hazard and other potential problems in the system, Standard & Poor’s said on Friday. An opportunity for “instilling market discipline” would have been missed. – Bloomberg


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