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Feature: "The Biggest Risk is Missing the Opportunity"
In October this year, it will be known if the Huarong Asset Management Corporation's (Huarong) efforts to sell its non-performing financial assets to foreign investors will be a success.
The result of this international auction offered by Huarong depends a lot on the fate of the huge amount of non-performing assets in the hands of China's four AMCs, who are yearning to find new ways to handle the non-performing assets with fast speed and high efficiency, so as to reach the target of restoring the assets to the highest possible value.
Huarong published an announcement inviting investors to bid for asset packages comprising non-performing loans and interests, with a book value of 21.36 billion yuan (about 2.6 billion US dollars), after going on roadshows to the United States and Britain.
This will be the first time for China to sell financial assets to overseas investors. Yang Kaisheng, president of Huarong, told Xinhua that he is confident about the auction, saying that according to the successful experiences of other countries, such auctions are both profitable and attractive to investors. In addition, China's sound economic conditions and its imminent accession into the World Trade Organization are also beneficial factors for the auction.
Yang said that this international auction has equal importance for both Huarong and overseas investors. It is foreseeable that when China joins the WTO, the competition for foreign capital to enter China's financial market will be extremely fierce. The outcome of the auction will decide whether they can be the first to land in the Chinese financial market on the eve of the WTO accession.
"At one stop on our overseas roadshow, an investor asked me what the biggest risk is in buying the assets, and my answer was: the biggest risk is missing this opportunity," he said.
According to Li Xiaopeng, vice-president of Huarong, 12 first- class international investment banks, commercial banks, funds and conglomerates have paid Huarong 25,000 US dollars for detailed investigations and signed qualification statements and letters of security.
"All of them have experience in handling non-performing banking assets and have participated in such auctions in other countries," Li said.
The International Financial Corporation (IFC) has signed a memorandum with Huarong, according to which it will make an independent appraisal on the international auction projects, and then make decisions accordingly to offer financing support for investors.
In addition, the United States' Ernst & Whinney has been engaged as Huarong's trade and financial adviser.
"Investors can buy an asset package and handle it independently, they can also choose to organize joint-ventures with Huarong to jointly manage a package," Li said.
By the end of July, Huarong had handled non-performing assets worth 15.62 billion yuan, recovered assets valued at 7.22 billion yuan, with a recovering rate of 47.9 percent and a cash recovering rate of 31.6 percent.
Li said that although the recovering rate is high, it still needs to explore both the international and domestic markets to speed up the handling process, for the longer it takes, the greater the assets depreciate.
"It's like a popsicle," he said, "if you don't enjoy it right away, it will melt in your hand."
Huarong acquired non-performing assets worth 506 billion yuan from the Industrial and Commercial Bank of China, which involve some 77,000 debtors. If the assets are handled at the present speed, Huarong needs at least 20 years to complete the work.
Yang Kaisheng said that there is no serious legal obstacle for selling non-performing financial assets to foreign investors. Huarong has reported the auction to related government departments, and made suggestions concerning ratifying procedures, foreign exchange management, taxation policies and other related issues, receiving a positive response.
China set up four AMCs in 1999 to acquire part of the non- performing assets of the four State commercial banks, with a congregate book value of over 1.3 trillion yuan.
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