* Investors told a product backed by loans to coal company
at risk - state-owned paper
* China Credit Trust had a similar issue earlier, investors'
principal was paid
* Coal sector an increasing source of debt-risk for lenders
SHANGHAI, July 1 A Chinese trust firm has warned
that one of its high yield investment products may have trouble
making payments on time, a state-owned newspaper reported on
Tuesday, the latest possible default to hit the country's shadow
China Credit Trust Co Ltd's "Credit Equals Gold #2" wealth
management product (WMP), which raised 1.3 billion yuan ($209.62
million) from investors in 2011, may face difficulties repaying
them when the product matures on July 25, the China Securities
Journal reported, citing a statement by the company to
The "Credit Equals Gold #2" product is running into
financial problems because a coal miner in northern Shanxi
province has not been making fee payments since the second
quarter of last year, the media report said.
An official at China Credit Trust declined to comment when
contacted by Reuters, and the statement cited by the China
Securities Journal was not publicly available.
This case written about in China Securities Journal would be
the second such faced by a China Credit Trust product that made
loans to coal companies.
Earlier this year, China Credit Trust warned about a
possible default on a similar product - "Credit Equals Gold #1"
- facing a similar situation. But in that case, investors
recovered their principal when an unnamed investor stepped in to
purchase collateral assets.
In February, a high-yield investment product sold by Jilin
Province Trust Company to wealthy clients of China Construction
Bank failed to repay investors when it matured, due to trouble
the fund had getting repaid on a loan to a Shanxi coal company.
The popularity of investment trusts and other so-called
wealth management products has exploded in recent years, with
banks and trust firms marketing them as a high-yielding
alternatives to traditional bank deposits.
Analysts warn that the risk of defaults from such
off-balance-sheet loans is rising. Funds raised through the sale
of these products typically flow to weaker borrowers that
struggle to access bank loans, especially property developers,
local government financing vehicles and firms in industries
plagued by overcapacity.
The coal sector has proven a particular problem, having
borrowed heavily from other companies using structures such as
entrusted loans and guarantees.
China's Shanxi Coal International Energy Group, one of
China's largest producers, said on Thursday it was suing a
cluster of companies associated with alleged metals financing
fraud at Qingdao port and its parent for more than $177 million
in missed payments that had been guaranteed.
($1 = 6.2017 Chinese Yuan Renminbi)
(Reporting by Shanghai Newsroom; Editing by Kazunori Takada,
Pete Sweeney and Richard Borsuk)