SHANGHAI – The Chinese shadow banking giant whose liquidity crisis has fanned fears about financial contagion is planning to restructure its debt and has hired professional services firm KPMG to conduct an audit of its balance sheet, people familiar with the matter said.
Zhongzhi Enterprise Group hired KPMG in late July to review its balance sheet amid a worsening liquidity crunch, said the people. The Beijing-based company plans to restructure debt and sell assets after the review in order to repay investors, the sources said. The company manages more than 1 trillion yuan (S$188 billion) of assets.
It was not immediately clear how many products Zhongzhi has defaulted on and whether the company has sufficient assets to cover the shortfall if liquidated, said the people, adding that any restructuring process will likely be lengthy. Zhongzhi has suspended payments on nearly all its products, they said.
The Chinese firm did not respond to e-mails asking for comment, while calls to KPMG were not answered.
Zhongzhi, one of the country’s largest private wealth managers, is the latest financial giant to face the prospect of failure as the fallout from a deepening property slump spreads. Country Garden Holdings, which was previously the nation’s biggest property developer, is on the brink of default after sales plunged and it failed to meet an initial deadline to pay coupons on dollar bonds.
In a sign that the Chinese authorities are worried about potential contagion, the banking regulator has set up a task force to examine risks at Zhongzhi. While little known outside China, Zhongzhi is among the biggest players in the country’s US$2.9 trillion (S$4 trillion) trust industry. Many trust products are backed by real estate projects run by troubled developers such as China Evergrande Group.
One Zhongzhi-backed trust company, Zhongrong International Trust, has missed payments on dozens of products and has no immediate plan to make clients whole.
Pressure is building on President Xi Jinping’s government to cap the contagion risks and prevent social unrest. About two dozen people protested outside Zhongrong’s office in Beijing this week, a notable show of public outrage in a country with little tolerance for dissent. BLOOMBERG
