Zhongzhi Enterprise Group Co., a troubled shadow banking giant, has disclosed the extent of its financial woes, admitting to investors that it is “severely insolvent” with a deficit of $36.4 billion.
In a letter sent to investors on Wednesday, the privately owned wealth manager stated that liquidity has dried up, and the expected amount from selling off assets is low. This revelation comes after one of its trust-company affiliates failed to make payments to customers on high-yield investment products, raising concerns about the group’s financial stability.
The company’s audit revealed that Zhongzhi’s debts amount to 420 billion yuan to 460 billion yuan ($64.4 billion), while its assets total just 200 billion yuan, according to the letter.
Zhongzhi attributed its financial distress to the death of its founder Xie Zhikun in 2021 and the subsequent departure of senior executives, leading to internal management failure. Previous attempts at a “self-rescue” did not yield expected results, the firm acknowledged in the letter.
Efforts are underway to restructure the company, with KPMG hired to carry out the process, although it is expected to be lengthy and complex.
Shadow banks like Zhongzhi, which are less regulated, pool household savings to provide loans and invest in various assets. In recent years, Zhongzhi and its affiliates, including Zhongrong International Trust Co., have extended financing to troubled developers and acquired assets from companies like China Evergrande Group.
“Preliminary due diligence shows the group has endured a significant risk of sustainable business operation and the company doesn’t have sufficient assets to cover debt in the short term,” the firm said in the letter.
–With assistance from Li Liu and David Scanlan.
©2023 Bloomberg L.P.
