Chinese Trust Fund just avoids default after coal loans to bankrupt miner.

FT: “A Chinese fund company has avoided a high-profile default, reaching a last-minute agreement to repay investors in a soured $500m high-yield investment trust, in a case that had sent tremors through global markets.”
“China Credit Trust, one of the country’s biggest “shadow bank” institutions, raised Rmb3bn from investors three years ago for the investment, which was backed by loans to a coal miner that later collapsed.
Chinese authorities, alive to the ramifications for the country’s booming shadow banking sector, had been scrabbling to prevent a default. Nonetheless, investors were braced to lose their money when the fund matured at the end of January.
The “Credit Equals Gold No. 1” product – a tiny slice of China’s $1.2tn trust market – was sold through the private banking arm of Industrial and Commercial Bank of China to rich individuals rather than to retail punters.
Trust loans, which have typically been given to higher-risk borrowers such as property developers and mining companies, make up the largest slice of China’s vast shadow banking sector. With formal bank lending slowing, shadow financing rose to account for more than a third of new credit in China in 2013.
….The China Credit Trust product would not have been the first to fail in China, but with roughly Rmb4tn ($661bn) in trusts reaching maturity in 2014 amid tight liquidity conditions, the investment became a flashpoint for domestic and international concerns of an unravelling of the rapidly growing shadow banking sector.”“The underlying problem is a corporate sector insolvency issue, so there may be many more products threatening to default over time”, wrote David Cui, strategist at Bank of America Merrill Lynch, in a research note. “We suspect that, at a certain point, the involved parties will be either unwilling or unable to bail them out, which may trigger a credit crunch.”