BEIJING - The
non-performing loans of Chinese banks - a massive
economic burden and obstacle to bank and economic reform
- have become a magnet for foreign investment banks.
There's big business for foreigners in China's decades
of bad loan decisions.
UBSWarburg announced it
has bought US$185 million of non-performing loans from
the China Huarong Assets Management Company.
On
December 17, 2003, Huarong offered NPLs with a total
book value of nearly 25 billion yuan ($3 billion) for
bidding. On December 22, Huarong announced the
short-list of international bidders. Among them, 11
bidders have delivered 10 bidding proposals.
Five international investment banks and one
domestic company won. The five international investment
banks are Citibank Group, JP Morgan, Goldman Sachs, UBS
Warburg and Morgan Stanley.
Not long after UBS
warburg's move, American Investment bank Lehman Brothers
bought in NPL with a book value of $240 million also
from Huarong. In late August this year, the Xinda Assets
Management Company held a business promotion fair in
Changchun to sell the 15.7 billion NPLs it had bought.
Ten foreign investment banks participated. They included
Goldman Sachs, Merrill Lynch and Credit Suisse First
Boston.
The 10 billion yuan NPL ready for
auction mainly come from Xinda Assets Management
Company, which bought from the China Construction Bank
and the State Development Bank in 1999. The new assets
are those bought by Xinda from the Bank of China and the
China Construction bank in June this year. On June 29,
2004, Xinda obtained the right to dispose of the 278.7
billion yuan in NPLs from the Bank of China and the
China Construction Bank.
Morgan Stanley and
Goldman Sachs are the most active foreign investment
banks. On November 29, 2001, the bidding group headed by
Morgan Stanley bought non-performing credit with a book
value of 10.8 billion yuan from Huarong. It involved 254
companies and factories, of which two-thirds are
state-owned enterprises.
On July 8, 2003, Morgan
Stanley and the China Construction Bank signed a
contract on a pilot project for the disposal of
non-performing assets.
According to the China
Construction Bank, the project is the first one
involving cooperation between a Chinese state commercial
bank and a foreign investment bank. It is also the first
time that Morgan Stanley has bought the non-performing
assets of a state-owned commercial bank on a one-to-one
basis.
In the first NPL auction, Goldman Sachs
bought 250 million yuan NPL from Huarong.
Morgan
Stanley and Goldman Sachs have built a NPL service
platform to take over related assets. Both of them have
started business in China for recovery and disposal of
NPLs.
Morgan Stanley and Huarong have
established a united Assets Management Company while
Goldman Sachs has also established an asset management
company, named Huarong-Goldman Sachs. This is the first
time that China has sold NPLs through the establishment
of cooperative companies.
(Asia
Pulse/XIC)
Sep 17, 2004
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