Exclusive: Anxin Trust Restructuring Imminent as Debts Mount

A financial restructuring of troubled Anxin Trust Co. Ltd. is in the process of being finalized, sources have told Caixin, as the Shanghai-listed company asked for its shares to be suspended for one day on Wednesday because of “significant uncertainties” regarding a “significant item” that need to be investigated.

On Tuesday, Anxin’s general manager, Wang Rongwu, held a day of meetings with authorities from the Shanghai government, financial regulators and staff from an accounting firm, sources close to the company told Caixin. The meetings, which carried on late into the night, were “tense and the situation is grim,” one source said.

Anxin, one of only two trust companies listed on mainland bourses, has been suffering from cash flow problems and in April last year deferred redemptions on 2.8 billion yuan ($395 million) of trust products that had matured. The capital, interest payments and additional interest accumulated over the deferment period are scheduled to be repaid to investors in April.

The company said in a stock exchange filing (link in Chinese) on Tuesday night that it needs to verify important matters that could affect its share price. It said the Shanghai Stock Exchange approved the trading suspension to ensure that all investors had equal access to information.

Another source familiar with the matter told Caixin that the trading halt was related to the restructuring plan and the company’s 2019 annual financial report which, under stock exchange rules, must be released by the end of April.

Massive losses

Anxin warned in a Jan. 22 filing that it racked up losses in the range of 3 billion yuan ($140 million) to 3.5 billion yuan last year, and speculation has grown that those numbers may be revised upward. The company reported a net loss of 1.8 billion yuan in 2018, a dramatic reversal from the net profit of 3.7 billion yuan it showed in 2017. A second consecutive year of losses will trigger “special status” (SRT) designation, meaning its stock ticker will be tagged ST to warn investors that the company carries significant investment risk and its financial performance has been poor. The daily limit on its share price movement will be reduced to 5% from the normal market limit of 10%.

Anxin’s shares didn’t trade on Tuesday although there was no official announcement of a suspension for that day. Its stock has plunged by 64.4% over the past year and last traded at 2.5 yuan on Monday. Over the same period, the benchmark Shanghai Composite Index dropped 9.2%.

The Shanghai-based company is the latest financial institution to be forced to restructure, a casualty of an ambitious and risky investment strategy aimed at providing investors with high returns. Its biggest shareholder is Shanghai Gorgeous Investment Development Co. Ltd., a company controlled by businessman Gao Tianguo, which holds a 52.44% stake. The second largest shareholder is China Securities Finance Corp. Ltd., with a 4.41% stake.

China has 68 authorized trust companies and Anxin was one of the best-performing in 2017, but it plunged into the red in 2018 due to heavy investment losses which triggered an exodus of top executives. As of the end of 2019, Anxin had failed to repay 50 billion yuan of the 150 billion yuan of trust products under active management, sources close to regulators previously told Caixin.

The investments backing some of the trust products that are in default are owned by or closely related to entrepreneur Li Qin, who hails from Dazhou in Sichuan province, the same city as Gao Tianguo. Speculation has increased that Gao used the proceeds from the sale of Anxin’s trust products to fund Li’s businesses.

State-backed bailout

In July 2019, regulators stepped in and ordered Gao to dispose of his stakes in Anxin and other financial institutions he invested in, and use the proceeds to plug the massive hole in Anxin’s balance sheet, several institutional investors with knowledge of the matter told Caixin previously.

The Shanghai bureau of the China Banking and Insurance Regulatory Commission sent representatives to Anxin to closely monitor its business operations, the institutional investors said. The authorities also ordered Anxin stop issuing new products to avoid creating a Ponzi scheme, using the proceeds raised from new sales to repay earlier investors.

Anxin will likely be jointly acquired by Bank of China Ltd. and other state-owned enterprises in Shanghai, several sources close to regulators told Caixin in December. Bank of China will buy 2.87 billion shares from Shanghai Gorgeous Investment and, following the pattern of other state-backed bailouts, it is likely that Bank of China’s asset management subsidiary BOC Financial Asset Investment Co. Ltd. will send a team in to take over the company’s operations.

Contact reporter Tang Ziyi (ziyitang@caixin.com) and editor Nerys Avery (nerysavery@caixin.com)

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