FOCUS-China investment trust folds
By Michael Kramer
GUANGZHOU, China, Oct 7 (Reuters) - Chinese investors queued on Wednesday to
withdraw their money from one of China's biggest international investment firms that was
ordered closed because of its failure to repay debt.
The abrupt closure of Guangdong International Trust and Investment Corp (GITIC), a financial and business empire with major
investments in China and Hong Kong, unnerved foreign bankers.
It raised questions about China's backing for its international debt issues, even though the Bank of China stepped in to take
control of GITIC's debts and assets.
A central bank statement said foreign investors would have priority when it came to debt repayment.
Some analysts in Hong Kong, however, said that by allowing GITIC to fold Beijing was demonstrating a new resolve to reform
its debt-laden financial system.
''It sets an example, and is trying to show people the central government's determination to implement reform in the banking
system,'' said Vanessa Yeung, a Hong Kong-based economist at G.K. Goh Securities.
GITIC had assets of 21.43 billion yuan ($2.57 billion) and liabilities of 18.67 billion yuan at the end of 1996, according to the
latest central bank figures.
GITIC and central bank officials declined to comment on the size of the firm's domestic or foreign debt but foreign bankers
estimated it had some $500 million in short-term debts and $500 million more in long-term debt.
''If it is closed down this will have a very significant impact'' on foreign fund-raising for China, said a foreign banker based in
Shanghai, who had yet to see formal notification that GITIC had been shut.
One Shanghai-based analyst said: ''If China doesn't honour the debt it can forget about borrowing internationally.''
International credit rating agency Standard and Poor's has placed three GITIC bond issues -- totalling $450 million -- on
CreditWatch with negative implications.
Banking officials called on creditors to register claims before January 6.
GITIC had extensive investments in China's tumbling property and stock markets.
''I was very shocked to read about this in the newspapers this morning,'' said one middle-aged women queuing to register at
the GITIC headquarters building in Guangzhou, a 63-storey luxury commercial and hotel complex.
GITIC's collapse underlines the problems of China's many international trust companies, which have issued billions of dollars of
foreign and domestic debt.
The so-called ITICs once played a key role in introducing foreign capital, but are now less important as Chinese companies go
overseas directly to raise funds.
A slowing economy and chronic problems in the state industrial sector have raised questions about the ability of local
governments to continue supporting the ITICs.
GITIC, which has interests in everything from power generation to property and toll roads, lost its investment-grade rating from
Moody's Investors Service in September.
It has property in Hong Kong where an affiliate, GITIC Enterprises Ltd , is listed.
Trading in GITIC Enterprises shares were suspended on Wednesday at the company's own request pending an announcement,
a Hong Kong Stock Exchange statement said.
The listing in March last year of GITIC Enterprises, which imports and sells construction materials in Hong Kong and China,
was a roaring success at the height of a mania for China-backed companies. The issue was almost 900 times oversubscribed.
Beijing has been getting tough on what it perceives as loopholes in its foreign exchange regulations, in a bid to preserve its now
ample foreign currency reserves.
It has also been taking aim at trust companies, fearing they have been skirting some of its regulations and taking on too much
risk in their investments.
It allowed the China Venturetech Corp, a big investment company, to fail in June. |
