No, you first

28 January 2014 By John Foley Follow @johnsfoley

A stricken miner has been saved at the eleventh hour, and so have buyers of wealth products backed by its debt. Even if the government will tolerate failure, institutions selling such products may not. Desire to avoid public shame works wonders, as long as liquidity is plentiful.

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China Credit Trust said on Jan. 27 it had struck an agreement with investors in a wealth product it structured that was backed by a stricken mining company, just days from a potential default. The details of the agreement were not made public.

Investors who signed up to the agreement would receive their 3 billion yuan ($500 million) principal, which was due on Jan. 31, but only part of the most recent interest payment, according to a report in First Financial Daily.

Zhenfu Energy, which had raised money from the trust company, had previously been unable to operate some of its mines because of licensing difficulties. The company’s vice chairman was arrested in May 2012 for accepting bank deposits without a licence.

The wealth product, “2010 China Credit / Credit Equals Gold #1 Collective Trust Product” was issued by China Credit Trust and sold to wealthy clients through Industrial and Commercial Bank of China, the country’s biggest bank by assets. Trust companies in China take money from investors and channel them into assets like loans and equity.

Collective-unit trusts, structured to be sold to a number of investors rather than a single one, were 23 percent of trust companies’ total assets under management in the third quarter of 2013, according to CLSA.

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