More NPLs hit the market

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Last updated at: (Beijing Time) Tuesday, December 09, 2003

More NPLs hit the market

China Huarong Asset Management Co (Huarong) is to sell more non-performing loans (NPLs) worth 25 billion yuan (US$3.01 billion) in the middle of the month.

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China Huarong Asset Management Co (Huarong) is to sell more non-performing loans (NPLs) worth 25 billion yuan (US$3.01 billion) in the middle of the month.

The move marks Huarong's latest attempt to dispose of massive assets following a successful drive in 2002 to form two joint ventures with Morgan Stanley and Goldman Sachs to dispose of 12.8 billion yuan (US$1.54 billion) in bad assets.

The massive amount of NPLs will be reshaped into 22 units, and investors will be able to bid for one or several of the 22 units. The units will go to the highest bidder.

According to senior officials with Huarong, most of the preparatory work has been finished.

Asset selection, investor registration, due diligence from Huarong and material filing have all been completed.

"We are in the process of answering inquiries from investors, which are also in the final stages of due diligence," said Yang Kaisheng, president of Huarong, which is one of the four State-owned asset management companies. The other three are Orient, Great Wall and Cinda.

"Bidding for massive selling will be open to both domestic and foreign buyers," said Yang.

He said about 20 giant international financial firms, including almost all the leading investment banking companies in the world, have expressed interest in joining the bidding.

More encouraging news is that a number of large domestic companies, according to Huarong, also plan to join the race, which is rare considering previous sell-offs have been dominated by international buyers.

He declined, however, to name the participating companies.

"I believe we will have a satisfactory result and the pricing will be fair due to stiff competition between different bidders," said Yang, adding that overseas investors are very enthusiastic about the bidding backed by confidence in their ability to dispose of these assets.

Ernst & Young will be the financial adviser of the transaction.

Prior to the move, Huangrong announced last week a sale of part of its a massive non-performing loans (NPLs) to two foreign financial groups.

These NPLs amount to 1.78 billion yuan (US$214.97 million) in book value and include assets from 153 companies in Wuhan, capital of Central China's Hubei Province. Of the four groups of bidders, final buyers are GE GFR Asset Management Inc and Morgan Stanley MSREF IV Acquisition (Asia) Inc-led consortium.

Huarong announced a bottom line price to the bidders before a public bidding, which was much different from Huarong's earlier practice of requiring bidders to volunteer price quotes.

"This unusual practice shows Huarong's aggressiveness in attracting investors from home and abroad to join its efforts in disposal of NPLs," said a senior official with the Beijing-based firm, which is believed to be the most active player among the four asset management firms established in late 1990s to gather most of the NPLs from China's largest four State-owned banks.

China launched four State-owned asset management companies to help the largest four insolvent State banks shrug off their bad lending to speed up reform and shore up creaky financial sectors that were billed as indispensable backbones for sustainable economic growth in coming decades.

In late 2001, Huarong announced deals to establish two joint ventures with foreign-led investment banking companies to dispose of part of the large pool NPLs . That deal resulted in the final establishment of a seven-year-partnership with Morgan Stanley and Goldsman Sachs late last year.

The deal was the first of its kind launched by the four asset management companies since the country began to take steps to dispose of mounting NPLs accumulated in the past decades by the four State-owned banks.

Prior to the move, most of the NPLs were sold by public auction and other public biddings by the Chinese companies.

About 1.4 trillion yuan (US$169.28 billion) worth of NPLs were gathered by China's four major asset management companies.

Those practices helped boost Huarong's expertise and know-how in the disposal of NPLs in a market-oriented style and laid a solid base for Huarong's reshaping in the future, said Yang.

He said in earlier reports that Huarong is to reshape itself into a investment banking firm after it sells all the assets in its hands.

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