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PR Newswire
16-04-2014, 08:35 PM
More defaults are coming...
China defaults mount among inter-company loans
[SHANGHAI] Chinese companies that have lent money to other companies are facing a potential wave of defaults, with several listed firms already reporting missed loan repayments.
Shipbuilder Sainty Marine Corp Ltd on Tuesday became the latest listed firm to report that it had failed to receive principal and interest repayments on a 900 million yuan (US$144.7 million) loan to a property developer.
The same day, Qiaqia Food Co Ltd announced that it would launch a lawsuit against another food producer for failing to pay interest on a 40 million yuan (US$6.4 million) loan.
Chinese companies granted a net 2.55 trillion yuan (US$411 billion) in so-called entrusted loans in 2013, nearly double the 1.28 trillion yuan total in 2012, making them the second- biggest source of domestic credit behind bank loans, according to Reuters' calculations based on published central bank data.
Entrusted loans require banks to serve as an intermediary, but a company serves as the ultimate lender and records the loan asset on its balance sheet. "Companies offering entrusted loans typically want to lend while bypassing official restrictions for credit, such as lending quotas," said Zhang Weigang, head of investment at Shanghai Securities. "That means they typically lend to risky industries such as property, solar panel manufacturing and non-ferrous metals." Entrusted loans are just one of several channels through which non-financial firms offer credit to one another, Zhang said. Other methods include corporate discounting of bank acceptance bills, as well as corporate purchases of trust products, which are usually backed by high-interest corporate loans.
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Source: Business Times Breaking News
China defaults mount among inter-company loans
[SHANGHAI] Chinese companies that have lent money to other companies are facing a potential wave of defaults, with several listed firms already reporting missed loan repayments.
Shipbuilder Sainty Marine Corp Ltd on Tuesday became the latest listed firm to report that it had failed to receive principal and interest repayments on a 900 million yuan (US$144.7 million) loan to a property developer.
The same day, Qiaqia Food Co Ltd announced that it would launch a lawsuit against another food producer for failing to pay interest on a 40 million yuan (US$6.4 million) loan.
Chinese companies granted a net 2.55 trillion yuan (US$411 billion) in so-called entrusted loans in 2013, nearly double the 1.28 trillion yuan total in 2012, making them the second- biggest source of domestic credit behind bank loans, according to Reuters' calculations based on published central bank data.
Entrusted loans require banks to serve as an intermediary, but a company serves as the ultimate lender and records the loan asset on its balance sheet. "Companies offering entrusted loans typically want to lend while bypassing official restrictions for credit, such as lending quotas," said Zhang Weigang, head of investment at Shanghai Securities. "That means they typically lend to risky industries such as property, solar panel manufacturing and non-ferrous metals." Entrusted loans are just one of several channels through which non-financial firms offer credit to one another, Zhang said. Other methods include corporate discounting of bank acceptance bills, as well as corporate purchases of trust products, which are usually backed by high-interest corporate loans.
...
Source: Business Times Breaking News
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