Chinese asset manager signals debt review, stokes contagion fears

A major Chinese asset manager has told investors it needs to restructure its debt, stoking fears that a chain of defaults will spread through the financial sector and cause a destabilizing shock to the country’s ailing economy.

Zhongzhi Enterprise Groupwhich raises funds from companies and the general public and manages assets worth 1 trillion yuan ($137 billion), discussed the restructuring at an investor meeting on Wednesday, video seen by Reuters showed.

The Beijing-based company, which has considerable exposure to the country’s real estate sector, has already stopped paying investors on all investment products.

Zhongzhi operates in the financial sector”in the shadow” from China, which moves US$ 3 trillion, and sells high-yield investment products through its trust and wealth management units, in addition to maintaining strong links with banks and other financial institutions.

Restless retail investors are bombarding publicly traded companies with questions about their exposure to Zhongronga subsidiary of Zhongzhi, after defaults by the trust company sparked broader contagion fears.

Citigroup said in a note that it expected more trust fund defaults due to its exposure to the real estate downturn in China, but that this was unlikely to lead to a “Lehman moment”.

“As the problems in the real estate development sector are not new and have been developing for several years, we believe that investors would have already prepared themselves psychologically for the possibility of defaults.”

The financial problems of zhongzhi they are the latest challenge facing the Chinese authorities in their fight to contain the crisis in the real estate sector and revive the faltering recovery of the world’s second largest economy.

Morgan Stanley joined other institutions in cutting China’s growth forecasts for this year. He now reckons China’s Gross Domestic Product (GDP) will grow 4.7% this year, up from a previous forecast of 5%.

zhongzhi It has hired one of the Big Four accounting firms to conduct a comprehensive audit of the company and is seeking strategic investors, its management told investors at Wednesday’s meeting.

The plan consists of “self-rescue” through restructuring, focusing on debt collection and asset liquidation, but bankruptcy is also an option, they added without disclosing the amount of debt that needs to be restructured.

It is not possible to determine whether the company is insolvent before the end of the audit, which began in July, the executives told their investors, according to video seen by Reuters.

Zhongzhi did not immediately respond to a request for comment.

Wednesday’s meeting came after Zhongrong International Trust Co, a major trust company controlled by Zhongzhi, defaulted on dozens of investment products since late July, Reuters reported on Wednesday, citing sources.

real estate crisis

The liquidity strains facing Zhongzhi highlight the ripple effect of an unprecedented debt crisis in China’s real estate sector, which accounts for about a quarter of the economy and has lost momentum rapidly in recent months.

The central bank said on Thursday it would retain reasonably ample liquidity and maintain its “precise and forceful” policy to support the country’s economic recovery amid mounting headwinds.

Zhongzhi runs a banking empire”in the shadow”, with holdings in five asset management companies, four wealth management companies and Zhongrong International Trust, a major trust company that manages assets worth more than 700 billion yuan ($95.69 billion).

The group has been selling stakes in some publicly traded companies it controlled in recent years, and downsizing its business, which has come under increasing pressure following China’s crackdown on the financial sector “in the shadow” and the fall of the real estate market.

China’s property market has gone from crisis to crisis in the past two years, with a number of major developers including China Evergrande Group and Sunac China defaulting on debt payments.

Country Garden, the largest private developer in the country, has been the latest to suffer a suffocating liquidity crisis at a time when real estate investment, home sales and new construction have been in contraction for more than a year.

Evergrande said late Wednesday that it would push back the voting date and creditor meetings for its offshore debt restructuring plan to August 23 and 28, respectively, to give creditors more time to consider the terms. .

The delay follows an agreement reached this week to sell a 27.5% stake in its subsidiary China Evergrande New Energy Vehicle Group, and swap some of the NEV unit’s debt owed to the parent company and the current majority shareholder in Actions.

Source: Reuters