Citic Trust Co., a unit of China’s biggest state-owned investment company, missed a bi-annual payment to investors in one of its products after a steel company missed interest payments on the underlying loan.
A sustained fall in steel prices and losses sustained by Yichang Three Gorges Quantong Coated and Galvanized Plate Co. caused the company to miss 74.6 million yuan ($12 million) in interest payments, according to a statement on Citic Trust’s website Dec. 21. As a result, Citic Trust won’t be able to pay investors the latest installment of the trust product payment that was due Dec. 20, it said.
Trusts, which target people with at least 1 million yuan to invest, have grown to account for more than a quarter of China’s estimated $3.35 trillion in lending outside the banking system, according to an Oct. 16 UBS AG report. More loosely regulated than banks because they don’t hold deposits, trusts have lured investors with promises of high returns, and invest in everything from metals to real estate, as well as make loans.
Yichang raised 1.33 billion yuan in January 2012 via the trust product sold by Citic Trust and used the money to buy raw materials, according to the statement. The underlying loan now faces the risk of default, it said.
Citic Group Corp., parent of the trust company, was established to support former leader Deng Xiaoping’s market reforms in 1979 by Rong Yiren, who later went on to become a vice president of China. Its businesses now span banking to real estate and oil exploration, with the group reporting directly to China’s cabinet.
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