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Chinese investment conglomerate Zhongzhi Enterprise Group Co. has filed for bankruptcy after failing to repay debt, as the shadow banking giant grapples with a deepening real estate market downturn.
Zhongzhi applied for bankruptcy on the grounds it could not pay its due debts and its assets were insufficient to pay all its debts, Beijing’s First Intermediate People’s Court said in a statement on Friday, adding that the court has decided to accept the case.
The worsening woes at Zhongzhi, a major player in China’s shadow banking sector add to worries that the country’s property debt crisis is spilling over into the broader financial sector.
As early as July last year, Zhongrong International Trust Co, a leading trust company controlled by Zhongzhi Enterprises Group, missed payments on dozens of investment products, sparking market concerns that the conglomerate slipped into a liquidity crisis. Read more …
Shortly after that, Zhongzhi said that it would conduct a debt restructuring and has stopped payment to investors in all investment products, adding that it had hired one of the Big Four accounting firms to conduct a comprehensive audit of the company, and seeking strategic investors. Read more …
In November, Zhongzhi told investors that it’s “severely insolvent” and it disclosed a financial shortfall of up to 260 billion yuan ($36.5 billion). “Initial inspections show that the group is seriously insolvent and has significant continuing operational risks. The resources available for debt repayment in the short term are much lower than the group’s overall debt scale,” said Zhongzhi.
An audit of its balance sheet revealed that the company has debts ranging from about 420 billion yuan to 460 billion yuan ($59 billion – $64.6 billion), more than twice its assets of 200 billion yuan, Zhongzhi said. Read more …
Just days after that, Beijing police said that it has launched a probe into Zhongzhi on suspicion of committing “illegal crimes” and that “mandatory criminal measures” have been placed on a number of suspects, including one surnamed Xie, the same as its late founder, without specifying the suspects’ alleged crimes or details of the measures being taken. Read more …
Starting off with timber and real estate trades in the 1990s, Zhongzhi quickly expanded into businesses ranging from chipmaking, healthcare, new energy vehicles and finance, according to its website. Its financial businesses include trust, asset management, insurance, futures, and wealth management.
Zhongzhi has been selling stakes in some listed companies over the past few years, and reducing the size of its business, after coming under pressure in the wake of China’s crackdown on shadow banking, and the property market downturn.