2014-03-27

Chinese Corporate Investors in the Dark as Trust Investments Falter; Borrow Short to Lend Long Strategy Falling Apart in 2014

One company at the center of a liquidating trust is HIT Shougang Technology (translated by Google as Workers first), which according to Bloomberg:
HIT Shouchuang Technology Co., Ltd. owns and operates a chain of department stores that sell a general line of apparel, electric appliances, home furnishings, and other miscellaneous general merchandise. Through its subsidiaries, the Company also develops computer software and provides tourism and food services.

The firm was having weak earnings and found they could earn more money by investing in trust products. These were pooled products used to fund other trust investments about which the investor knows next to nothing. On top of that, the fund company borrows short and lends long, rolling over the pooled trusts at lower interest to invest in higher return products. When trust fundraising collapses as it has in 2014, the firms borrowing short to lend long are forced into liquidation in order to return capital to investors.

Long story short: China's trust problems have a much wider reach than most media coverage lets on. Even listed companies with seemingly no relation to the industry are at risk due to firm capital being tied up in these products.

Below is the Google Translation of the story. 中航信托兑付延期:工大首创深陷“资金池”
21st Century Network ( microblogging ) listed company "job" is not a new topic, remove or PE real estate projects, trust management is also likely to allow listed companies planted a somersault.

Workers first before the announcement, saying the purchase of 10 million "Tin Fu • Aviation Trust Capital Trust Scheme No. 26," with an original maturity of March 19 this year, failed to timely payment.

Reporters call the workers first, that the company is negotiating with AVIC Trust, has not received a clear answer. The Aviation Trust insiders said the product is being liquidated, the two sides argued for their own, it seems a novelty.

Trust products into the unknown

In recent years, as many trust funds pool model of product innovation direction, that when the issue of trust products to investors to establish a "pool of funds" to raise funds after the first, and then by the trust funds to invest in its sole discretion. This model, while improving the utilization of funds also increased the potential risks of the product.

Workers first on March 26 issued a statement saying, Central Air Trust initiated and established "Aviation Trust • Tianfu the 26th Capital Trust scheme," the original maturity date of March 19, 2014, according to the trust document conventions, trust is automatically postponed to allow all-cash assets so far. As of the announcement date, due to the emergence of China Aviation trusts the maturity can not be cashed in, causing the company is currently unable to recover the principal and the corresponding revenue, the company will actively contact the Aviation Trust verify the situation.

The Trust plans to AVIC Trust Corporation in March 19, 2013 launch, the total fund size of 11 million yuan, the expected annual yield of 7.5%, subject to the issue of individual and institutional investors, one-year period, the investment threshold is 800,000 yuan, the China CITIC Bank Corporation Limited Nanchang Branch hosted a collection of funds belonging to the trust.

Trust documents show that its investment direction:

Trust Trust Units or beneficiary under the trust scheme under the Trust Scheme (1) capital investment trust under the Trust Scheme good reputation in the industry trust company (including the Trustee I) issued investment targets in line with one of the following conditions :

① all kinds of infrastructure projects; ② quality corporate liquidity loan program; ③ pledge of shares of listed companies financing the project; ④ energy development and financing projects; ⑤ securities investment projects; ⑥ other projects approved by the Trustee;

(2) under the Trust Scheme trust funds to invest in the trust property under a trust scheme a good reputation in the industry trust issue.

(3) under the Trust Scheme trust funds to invest in financial institutions, along with the management of the Trustee considers low-risk, highly liquid fixed income assets.

Trust funds idle period (4) the existence of a trust can be used to store commercial banks, investment in the inter-bank bond market, money market funds and the trustees believe the same time with low-risk, high liquidity of other financial products.

The above documents show the direction of investment suggests that such products are not actually clear investment targets, a "pool of funds" products. These products are characterized in the trust funds to invest in the contract is not clear, but framed the direction of investment, such as debt, equity, other trusts, flexible product term, there are 3 months, 6 months, 9 months, 1 year, 2 years.

"Trust in the aircraft prior to the announcement show normal results in the aircraft product maturity extension bulletin released, and we are to understand the situation, it is unclear specific issues." Workers first insiders said the network of the 21st century.

Aviation Trust, formerly known as Jiangxi Jiangnan Trust Corp., the China Aviation Industry Group Co., Ltd., China Aviation Technology Shenzhen Co., Ltd. and the introduction of strategic investors such as Singapore's OCBC Bank initiated the formation of five units.

Until Aviation Trust March 19 announcement said, "Aviation Trust • Tianfu the 26th Capital Trust scheme," an original maturity of March 19, 2014, according to the trust document conventions, trust is automatically extended to allow all cash assets .

The report of the trust fund management plan shows, July 1, 2013 to September 30, 2013, trust income of $ 133,962.21, Trust expenses 133.30 yuan; October 1, 2013 to December 31, 2013, trust income 78.54 Yuan, trustee fee $ 0, in the meantime, the executive manager of the Trust by the 杨海晨 changed to Liu Zhipeng.

21st Century Network Contact Zhipeng, no one answered the phone has been in the state. The Aviation Trust office personnel said that the product is still clearing them. Obviously workers first statement contradictory aspects.

Earnings growth has become a financial investment

Workers first 2013 report shows that the company's main business is subject to the impact of the retail network suffered ceiling, financial investment has become a new profit growth point initiative is trying to work great pioneering.

Report shows that workers first in 2013 net profit attributable to equity holders of 3,569.78 million, a decrease over the previous year 1,201,400 yuan, a decrease of 3.26%. Net profit after deducting non-recurring gains and losses attributable to equity holders of 3,493.82 million, a decrease over the previous year 1,211,400 yuan, a decrease of 3.35 percent. ; Earnings per share of 0.159 yuan, 0.005 yuan decrease over the previous year, a decrease of 3.05%.

The direction of foreign investment last year, workers first on the stock of capital investment is 30 million yuan, representing an increase of 20 million yuan a year earlier, to obtain investment income 757,600 yuan, the operation failed to achieve the target set at the beginning of last year.

Workers first purchase financial products last year, a total 90 million yuan, 50 million yuan, including trust banking, and bank financing 40 million yuan (duration 106 days), the bank's financial products were recovered in April and principal investment income 47.63 million.

Workers first purchase of 50 million yuan for the trust financial products, including: poly Berry Gold collection of funds 40 million yuan on the 20th and AVIC Trust • Tianfu the 26th set of capital of 10 million yuan, accounting for 7.6% of the company's net assets and 1.9% .

Bry-poly gold on the 20th Capital Trust scheme initiated by the Bridge Trust, the duration of one year, the scale of 40 million yuan Shifa expected annualized rate of return of 7%, the termination date is May 14 of this year, non-TOT products, including but not limited funding to invest in loans, equity, limited partnerships, investments and other financial products by way of portfolio investment.

According to the SFC guidelines require listed companies to use idle raising investment products must meet safety, meet the requirements of security, product issuers to provide the promised security and other conditions.

Or have a greater risk of incident

Aviation Trust • Rich on the 26th day itself is not large, or belong to a female child below Trust Trust.

Was supposed to expire March 19, 2014 • Aviation Trust Tianfu the 26th Capital Trust scheme, which belongs to the Aviation Trust Tianfu products. 21st Century Network two channels of data obtained from the point of view, "Fu on the 26th day" to raise the scale of less than 20 million yuan. Workers first subscribed for 10 million yuan, accounting for the bulk of the whole should trust scheme.

The 21st Century Network access AVIC's Tianfu products found belong to TOT (Trust Trust), that the child trusts to raise a certain amount of money and then invest in the parent trust, the trust is deemed to institutional investors in the sub-parent trust. This approach reduces the investment threshold, but opaque to raise funds to invest, investors are difficult to grasp the direction of the use of funds, there is no way to confirm the risk level of trust products.

Product data show that "the rich on the 26th day" itself is a rich series of TOT trusts next day, plus small-scale raising, most likely also belong to a female child below Trust Trust.

It works great first expressed in terms of respect: "Trust in the aircraft due to the emergence of the maturity terms can not deal with, resulting in the company is currently unable to recover the principal and the corresponding revenue."

If the "Tianfu the 26th" TOT really belongs to the sub-trust, but workers first principal repayment terms can not really trust products to invest in because there is a problem, then the event this AVIC Trust faced, or more than "the rich on the 26th day "A trust products so simple, but a large-scale" mother trusts' principal aspects of the emergence of risk can not be recovered.

21st Century Network Contact parties trust manager Liu Zhipeng, no one answered the phone has been in a state. On the other hand, the Air Trust, said aspects of the 21st Century Network, this product is now being liquidated, still walking the corresponding processes, will be distributed within 10 working days. The above statement saying the workers first aspect of the conflict.

The truth of how, in the 21st century network will keep a close eye.

To remind the industry in attracting high expected return, the increasing number of listed companies choose to earn extra income trust products outside the main income, but the listed company does not have sufficient expertise to determine whether they have the solvency of the investment project For trust product safety should be given greater attention.

Pu Yi Fan Jie wealth researcher said on 21st Century Network, the listed investment trust company products is a strange thing. Investment bank financing as well as the purpose of maintaining a good relationship with the bank, but trust listed companies give what value? If the listed company through a trust to finance its financing costs much higher than the benefit, listed companies generally do not need to say through the Trust to finance investment trust listed companies are not optimistic.

Features of the pool of funds is longer borrow short, in addition to general investment credit risk, the biggest risk is liquidity pools of capital goods. If the child failed to honor the trust, the trust may be a risk of the mother, there may be a liquidity problem in the

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