intersting trouble brewing near shang-ril-la..... sorry, having tloubre with my l (r)'s and r (l)'s....
Sunday January 10, 9:52 am Eastern Time
China's GITIC bankruptcy plan deals blow to banks
By Michael Kramer
GUANGZHOU, China, Jan 10 (Reuters) - In a blow to foreign creditors, China said on Sunday it would seek to wind up a major
trust firm and send banks to the back of the queue for repayment of over $4.0 billion in debt.
Trustees of the Guangdong International Trust and Investment Corp (GITIC), once one of China's best known borrowers on world capital markets, said they would
file for bankruptcy, shrugging off the impact on China's future credit stance.
Shortly after a two-hour meeting with creditors of GITIC, already closed, an assistant to Guangdong's provincial governor said there would be no priority treatment
for foreign banks.
''To my knowledge, China's bankruptcy law does not provide for priority to foreign creditors,'' Wu Jiesi told reporters.
China's bankruptcy law favours employees and other individual creditors, and bank creditors rarely use it to recover overdue loans.
Foreign and domestic bankers greeted the news grimly.
''I expected the worst case scenario and I got it,'' said a foreign creditor, one of more than 100 who attended the meeting in Guangzhou, capital of the southern
province.
''This will mean a lot of banks will have to make provisions for losses,'' said the banker, who declined to be identified.
GITIC, an arm of the Guangdong provincial government, was closed by the central bank in October for being unable to repay debts. Creditors were given until
January 6 to file claims.
Some bankers had believed that China might stand behind all the company's foreign debts as long as they had been registered and approved by financial authorities.
''Governor Dai has said registered debt would be given priority for repayment. He did not say it would be fully repaid,'' Wu said. Dai Xianglong is the head of the
central bank, the People's Bank of China (PBOC).
Wu also heads the liquidation and trustee committee set up to administer GITIC's debts and assets.
In Hong Kong, the head of the Monetary Authority, the de facto central bank, said it would not require banks to make provisions for bad loans to GITIC.
''I hope banks can study the information available and make their own decisions. I do not think it is necessary for the monetary authority to issue guidelines,'' Joseph
Yam told reporters. ''This is an isolated case, an individual company's situation.''
''It is difficult to say how much of registered debt will be repaid or if it will have priority,'' Yam added. ''Before, the PBOC said registered debt would have priority,
but whether the courts say so is not clear now.''
GITIC has some 240 creditors, including 135 foreign institutions, among them BoT-Mitsubishi Bank , HongKong Bank (quote from Yahoo! UK & Ireland: HSBA.L),
the Bank of East Asia and Merrill Lynch (NYSE:MER - news).
GITIC was said to have 36.17 billion yuan ($4.37 billion) in liabilities and 24.17 billion in assets.
''GITIC's board decided to file for bankruptcy because of massive internal and external debt, extremely chaotic management and liabilities that seriously exceeded
assets,'' Wu said.
He said the bankruptcy proposal would treat all creditors equally, much like practice elsewhere.
Asked if he was worried about the impact on future foreign borrowings he replied:
''Americans don't worry (about such practices), Thais don't worry and Hong Kong compatriots don't worry. As a Chinese, I don't worry either.''
Bankers said China's successful sale last month of $1.0 billion in global bonds -- despite the problems with GITIC -- may have emboldened authorities to take a
tougher stance on the repayment of the debt of a government company.
Wu also said that some 20,000 individual depositors at GITIC would get back their money, totalling some 779 million yuan.
''If that were not handled carefully, it could affect social stability,'' he said.
China has no deposit insurance scheme for its financial system.
($1.0 equals 8.28 yuan) |
