Chinese mining boss who threw a multimillion-dollar wedding for his daughter last year is now struggling under a pile of debts that threaten to trigger a major default in the country’s shadow banking industry.
Until a few weeks ago Xing Libin was known as the wealthiest man in Liulin, a county in northern China that struck it rich over the past decade thanks to bulging coal deposits. Looking more like a tousled professor than a slick tycoon, Mr Xing acquired mining rights for what local media said was “the price of a cabbage” and built his unlisted company, Liansheng Resources Group, into a big player in the Chinese coal industry.
Mr Xing put his success on display in March 2012 at a Rmb70m ($11m) party to jointly celebrate his daughter’s wedding and his company’s 10th anniversary. He rented three aircraft to fly family and friends to the resort island of Hainan, brought in pop stars for a gala concert and assembled a fleet of six Ferraris for the wedding procession.
But since then the slowing Chinese economy and plunging price of coal have dealt a heavy blow to Liansheng and other mining companies across the country’s coal belt.
On November 29, the Liulin County People’s Court in Shanxi province announced it had received an application from Liansheng to restructure its operations because it was unable to pay off loans.
Figures presented by the court revealed the extent of the company’s woes, according to the website of the People’s Daily, the official Communist party newspaper. “Liansheng Group’s financial situation is bleak,” it said. “Its debts have nearly reached Rmb30bn and it has already basically lost the ability to repay its debts. Moreover, it faces multiple financial problems, including owing money for taxes, workers’ pensions, project funds, materials and equipment.”
Chinese regulators have long worried about debt risks in the coal industry and have in effect barred banks from lending cash to miners. Yet like its peers, Liansheng had little trouble finding willing lenders among China’s burgeoning shadow banks, which regulators have allowed to help plug the financing gap.
From late 2011 to early 2012, Jilin Trust, one of China’s vast array of non-bank financial institutions, sold to investors an investment product worth Rmb1bn backed entirely by loans to Liansheng.
Jilin Trust warned investors at the start of this month that the first tranche of the Liansheng loans was nearing maturity and that the mining company had yet to cover what is owed, according to China Business News, a local financial newspaper.
A manager with Jilin Trust confirmed to the Financial Times that it had contacted investors about the risk. “This company has cash flow problems. This credit product faces repayment difficulties,” she said, adding that Liansheng had not notified it before applying for restructuring, a process that could pave the way for it to default on some debts.
Multiple calls to Liansheng went unanswered.
Trust companies in China are often very demanding in their requirements for physical assets as collateral, but the Liansheng product was backed only by third-party guarantees. Jason Bedford, a former big four auditor who has focused on the Chinese trust sector for the past six years, said he had never seen a product that relied exclusively on third-party guarantees.
“This is clearly very risky,” he said. “If this was fully disclosed in the product prospectus and there is no evidence of mis-selling, then the loss could be passed on to investors.”
Liansheng’s troubles are a reminder of the thin dividing line between China’s banks and its shadow lending industry. The Liansheng loan product sold by Jilin Trust was distributed in part via China Construction Bank, the country’s second-biggest lender by assets.
Banks tell customers they do not guarantee trust products, which offer returns far higher than traditional bank deposits, but buyers often ignore the warnings in the belief they carry the banks’ implicit backing. The Liansheng investment product targeted an annual return of 9.8 per cent.
Additional reporting by Emma Dong
就在几周以前，邢利斌还以柳林首富著称，柳林是中国北方的一个县，该县在过去十年间因丰富的煤炭储量而致富。邢利斌看起来更像是一位不修边幅的教授，而非一位油滑老练的商业大亨。他以当地媒体所谓的“白菜价”购得了采矿权，并将他的非上市公司联盛能源有限公司（Liansheng Resources Group，简称联盛能源）打造成了中国煤炭行业中的一家举足轻重的企业。
据中国本土财经媒体《第一财经日报》(China Business News)报道，吉林信托在12月初向投资者发出警告称，联盛能源信托贷款第一期已临近到期日，而该公司到目前为止还没有拿出足够的偿付资金。
联盛能源的问题是一记警钟，提醒我们关注中国银行系统与影子银行体系之间那道细细的分界线。由吉林信托发售的联盛贷款产品部分是通过中国建设银行(China Construction Bank)销售的，按资产规模计算该行是中国的第二大银行。