Back
28 Jan 2014
Flash: China's troubled trust product will pay principal - Nomura
FXstreet.com (Bali) - A Chinese trust product - marketed by ICBC - will avoid full default, after a compromise was reached to pay back the principal to investors. Zhiwei Zhang, Economist at Nomura, offers further insights on the deal agreed.
Key Quotes
"A trust product launched by the China Credit Trust (or Zhongcheng Trust) has reportedly been facing default risk. A Chinese financial news agency, Hexun, reported today that the China Credit Trust has offered investors their principal investment back on the due date. Investors have already been paid 2.8% interest for the last 12 months, but there will be no more interest payments, according to Hexun. The expected return advertised by the trust company was 9.5%-11%, depending on which tranche investors bought. "
"This offer comes as a compromise given rising concerns over a full default, but it is likely that investors have become more cautious on trust products in general. New issuance of trust products in January (up to 26 January) was RMB27.3bn, compared to monthly new issuance of RMB87.1bn in December 2013 and RMB56.8bn in January 2013, based on data collected by financial data vendor Wind. New issuance in Jan is set to hit a 2-yr low."
"We continue to expect more bad news from the shadow banking sector and the real economy in H1. Interest rates remain high and economic momentum is slowing quickly, as evidenced by the sub-50 reading of the HSBC flash PMI in January. We believe the financial stress in the economy continues to build and will eventually lead to credit defaults in the corporate and trust sectors in 2014."
Key Quotes
"A trust product launched by the China Credit Trust (or Zhongcheng Trust) has reportedly been facing default risk. A Chinese financial news agency, Hexun, reported today that the China Credit Trust has offered investors their principal investment back on the due date. Investors have already been paid 2.8% interest for the last 12 months, but there will be no more interest payments, according to Hexun. The expected return advertised by the trust company was 9.5%-11%, depending on which tranche investors bought. "
"This offer comes as a compromise given rising concerns over a full default, but it is likely that investors have become more cautious on trust products in general. New issuance of trust products in January (up to 26 January) was RMB27.3bn, compared to monthly new issuance of RMB87.1bn in December 2013 and RMB56.8bn in January 2013, based on data collected by financial data vendor Wind. New issuance in Jan is set to hit a 2-yr low."
"We continue to expect more bad news from the shadow banking sector and the real economy in H1. Interest rates remain high and economic momentum is slowing quickly, as evidenced by the sub-50 reading of the HSBC flash PMI in January. We believe the financial stress in the economy continues to build and will eventually lead to credit defaults in the corporate and trust sectors in 2014."