China International Capital Corp., the nation’s top-ranked investment bank last year, is set to become the first domestic securities firm to take control of a trust, said a person with direct knowledge of the matter.
CICC expects to get approval from the banking regulator in about a month to buy 35 percent of Hangzhou-based Zheshang Trust Co., said the person, who declined to be identified as the information is confidential. CICC will name Managing Director John Cheng as general manager of Zheshang and appoint most executives for the first three years, the person said.
Acquiring the trust would allow Beijing-based CICC’s clients to lend to companies by buying credit-related trust products, the person said. Foreign rivals including Morgan Stanley have invested in the trusts, which charge higher loan rates and offer more financial products, as policy makers grappling with spiraling inflation tighten curbs on local banks.
“Trust companies are like department stores for the financial sector,” said Li Yang, an analyst at Use Trust, a Nanchang-based consulting and research firm for the Chinese trust industry. “Securities companies can expand their playing field to include businesses that otherwise are off limits to them, including lending,” using the trusts, he said.
Yang Guang, a Beijing-based spokesman at CICC, declined to comment. A press officer at the China Banking Regulatory Commission, who asked not to be named citing the agency’s policies, declined to comment.
Curbs on Banks
Trusts, which are overseen by the banking regulator, typically collect funds from individuals and companies without guaranteeing returns and invest the proceeds.
Loans from trusts are growing in demand in China, the world’s second-biggest economy, after the central bank this month raised reserve requirements for the biggest lenders to a record 21 percent to restrain inflation and lending that exceeded economists’ estimates in April. Lenders last month were also ordered to conduct new stress tests on property loans and demand faster repayment on government debt.
The measures led Chinese banks to dole out 2.24 trillion yuan of new loans in the first quarter, 14 percent less than the same period a year ago, according to the central bank. Industrial & Commercial Bank of China Ltd., the nation’s largest, in March said it will expand credit at the slowest pace in three years.
Those restrictions have led Chinese developers, for instance, to pay interest and fees totaling 17 percent to 20 percent of loans to borrow from trust companies, according to a May 17 report to clients from Standard Chartered Plc.
Investors in Trusts
Foreign banks that have bought stakes in Chinese trusts include New York-based Morgan Stanley and Barclays Plc.
Morgan Stanley in 2008 got regulatory approval to buy 19.9 percent of Hangzhou Industrial & Commercial Trust Co. The Wall Street bank is now working with the trust to raise a 1.5 billion yuan ($230 million) local currency fund for their joint venture private equity firm, according to a May 18 statement.
A unit of London-based Barclays in 2008 acquired a 19.5 percent stake in New China Trust Co., according to the trust’s website and annual report.
Domestic lenders led by China Construction Bank Corp., the nation’s second largest, have also invested in such companies. Beijing-based Construction Bank owns 67 percent of a trust company, while smaller rival Bank of Communications Co. holds 85 percent of another.
CICC may take a 35 percent stake in a trust after its restructuring, the 21st Century Business Herald had reported on Dec. 28, citing a person it didn’t name.
Zhejiang International Business Group Co., an international trading and property development company backed by a provincial government, holds more than 50 percent of closely held Zheshang Trust. Three calls to Hangzhou-based Zhejiang International’s board line weren’t answered.