By Rebecca Feng
China's Zhongzhi Enterprise Group has at least $31 billion more liabilities than assets and now faces "significant going concern risks," it said in a letter to investors this week.
The company, which caused alarm when one of its key businesses missed a series of debt payments earlier this year, said it has liabilities of $59 billion to $64 billion. Its assets are worth $28 billion, according to the letter sent Wednesday night.
Zhongzhi, based in Beijing, owns several wealth-management businesses including a large trust company that failed to make interest and principal payments on many of its products earlier this year. That led to fears China was facing a "Lehman moment," where problems at one company lead to a broader fallout.
Missed payments by the trust business, Zhongrong International Trust, have piled up. Since August, at least 16 publicly listed companies in mainland China have said in stock-exchange filings that they didn't receive interest or principal payments on products managed by Zhongrong Trust. Those missed payments add up to the equivalent of $144 million.
Zhongrong, like other Chinese trust companies, provided financing to property developers, among other companies. It had the equivalent of $108 billion in assets under management at the end of 2022. China's entire trust industry had a total of $3 trillion in assets under management as of June 30, according to the latest official data.
In September, Zhongrong Trust engaged Citic Trust, owned by state conglomerate Citic Group, and CCB Trust, owned by China Construction Bank, to help it get through its problems. The details of the arrangement were vague, but the trust company said it wasn't a bailout.
In the Wednesday letter, Zhongzhi said its assets are concentrated in debt and equity investments, which are difficult to liquidate and the recovery value will be low. The group is "seriously insolvent" with "significant going concern risks," it said.
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(END) Dow Jones Newswires