(Bloomberg) — Troubled shadow banking giant Zhongzhi Enterprise Group Co. revealed its severe financial difficulties, telling investors it was “seriously insolvent” with a $36.4 billion shortfall.
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The private wealth manager said liquidity had dried up and the amount recoverable from asset disposals was expected to be low, according to a letter to investors on Wednesday seen by Bloomberg.
Zhongzhi first drew attention in August when one of its trust company affiliates failed to pay customers for high-yield investment products. The group’s financial difficulties pose a greater challenge for President Xi Jinping as officials grapple with a housing crisis and a weakening economy.
“The government must step in to help and ensure that asset disposals are done in an open and fair manner,” said Sun Jianbo, founder of Beijing-based asset management firm Huaxin Capital, adding that non-performing assets are usually sold in an open and fair manner. 70% off. “This is a costly lesson for investors.”
The letter said the audit found Zhongzhi’s total debts were between 420 billion yuan and 460 billion yuan ($64.4 billion), while its assets were 200 billion yuan.
Zhongzhi stated in the letter that the founder Xie Zhikun passed away in 2021, and the subsequent resignation of senior executives led to the failure of internal management and that previous “self-rescue” efforts did not meet expectations. .
The company did not respond to a request for comment. The company earlier hired accounting firm KPMG to carry out what is likely to be a protracted restructuring process.
Those affected by Zhongzhi’s predicament are likely to be wealthy. Shadow banks like Zhongzhi are loosely regulated companies that pool household savings to provide loans and invest in real estate, stocks, bonds and commodities. In recent years, Zhongzhi and its affiliates, notably Zhongrong International Trust Co., have provided financing to troubled developers and acquired assets from companies such as China Evergrande Group, even as rival trusts have reduced risks.
“Preliminary due diligence has revealed that there are significant risks to the group’s sustainable business operations and that the company does not have sufficient assets to repay its debt in the short term,” the company said in the letter.
–With assistance from Li Liu and David Scanlan.
(Adds analyst comments and full text details.)
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