Coal news and updates

Creditors have agreed to a restructuring of a heavily indebted Chinese coal miner that had menaced the country’s shadow banking sector with a wave of defaults.

Details of the restructuring of Liansheng Resources – a coal miner in northern China – were not published by Xinhua, the official news agency that made the announcement, but an earlier report in local media indicated that the deal would avert immediate defaults.

 

It would be the second time in less than a month that Chinese financial institutions have reached an agreement to rescue shadow bank products on the verge of being wiped out.

In the latest case, Liansheng filed for restructuring in November because of a crippling Rmb28bn ($4.6bn) debt load. Six trust companies were together owed about Rmb5bn by Liansheng, but the ultimate creditors were wealthy investors who had bought high-yielding investment products from the trust companies based on those loans.

Many analysts have argued that China should allow trust products to fail in order to teach investors a lesson about the risks of high-yielding investments. But officials and bankers have instead focused on minimising pain in the short term while buying more time to work down bad loans and rein in the burgeoning shadow bank sector.

Critics believe this approach will fuel bigger problems in the future through undisciplined investment.

Although attention has focused on the trust companies exposed to Liansheng, China Development Bank, a state-owned lender, was its biggest creditor. As of October, Liansheng owed Rmb4.5bn to CDB. As its principal creditor, CDB had taken a lead role in negotiations over its restructuring.

The 21st Century Business Herald, a local newspaper, reported details of CDB’s restructuring proposal. Three unidentified local companies in Shanxi province, where Liansheng is based, would invest Rmb3bn in the delinquent miner.

CDB, meanwhile, would lend it a further Rmb2bn in return for a 50 per cent stake. The plan would give Liansheng six years to restructure and priority would be placed on paying off the trust products as they mature.

The deal would in effect protect the wealthy investors who had bought the trust products, while putting Liansheng’s bad debts on the books of Chinese banks and of the other financial institutions – including rural credit co-operatives and asset management companies – that had also lent it money.

About Rmb5tn worth of trust products will mature this year. Officials are trying to maintain confidence in these investments at the same time as getting banks to bring risky assets such as these that had been funnelled through shadow banks back on to their balance sheets.

A deal to prevent a default on a separate high-yielding trust product, issued by China Credit Trust, was reached in late January.

Xinhua said more than 90 per cent of creditors to Liansheng had agreed a restructuring, without providing further information. CDB said the restructuring talks were ongoing.

CDB is known outside China for the financing it has given to developing countries from Venezuela to Kazakhstan, but it is an even bigger player at home. More than three-quarters of its $1.3tn balance sheet consists of loans to local governments and domestic companies.

 

 

Source: ft.com