China Greenlights Sino-foreign Asset Firms

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Last updated at: (Beijing Time) Tuesday, December 03, 2002

China Greenlights Sino-foreign Asset Firms

China's first joint corporation to manage non-performing assets has been founded in Beijing. International investment banks Morgan Stanley and Goldman Sachs purchased about 13 billion yuan or about 1.6 billion US dollars in non-performing assets from China Huarong Asset Management Corporation after the company called for international public bids at the end of last year.

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The State-owned China Huarong Asset Management Co yesterday got the nod from the top regulators to form two Sino-foreign joint ventures.

The Beijing-based firm can now form seven-year joint ventures with giant foreign investment banking companies to dispose of the large pool of non-performing assets that it took over from the Industrial and Commercial Bank of China several years ago.

The long-awaited approval by the China Securities Regulatory Commission, the Ministry of Foreign Trade and Economic Co-operation and the central People's Bank of China followed six months of detailed reviews by regulators after Huarong signed contracts in March and April with its two partners. It marks a breakthrough in the handling of China's mounting non-performing loans. Until now, most bad loans have been sold through public auction and public bidding.

In the proposed First United Asset Management Co, Huarong's partner will be a Morgan Stanley-led investment banking group, which includes Morgan Stanley, Lehman Brothers, Salomon Smith Barney and KTH Investments. It will be responsible for the disposal of four packages of bad loans amounting to 10.8 billion yuan (US$1.30 billion), covering 254 companies in 18 provinces.

The other proposed joint venture is the Rongsheng Asset Management Co, with Goldman Sachs as Huarong's partner. The venture will take charge of a package of bad loans worth 1.97 billion yuan (US$238 million) from 44 firms in 13 provinces.

In line with international practice, two disposal service firms will also be established to deal with the bad loans on behalf of the two joint ventures.

The business lines of the two companies include management, transfers, exchanges, sales, restructuring and debt collection. But they are not allowed to provide direct investment services and other financial services, such as lending, deposits and settlements, nor can they provide the debt-to-equity swaps that Huarong itself provides.

Yang Kaisheng, president of Huarong, said: "It (the approval of the two joint ventures) is not only a breakthrough for Huarong but also a milestone for other companies as the new companies will provide an all-round solution to other follow-up deals."

The foreign parties will take a controlling stake in the two joint ventures, but the income generated from follow-up disposals will differ at different stages and Huarong's stake is expected to become bigger over time.

Huarong is now planning another public bidding to dispose of part of its bad loans in the first half of 2003.

"We are now speeding up the preparatory process for the public bidding. Although the exact amount of non-performing loans is not yet finalized, I believe it will be similar to the first time (over 10 billion yuan or US$1.2 billion)," said Yang.

China's four major asset management firms - Huarong, Orient, Great Wall and Sinda - took charge of 1.4 trillion yuan (US$169 billion) in bad loans when they were founded in the late 1990s but have since disposed of part of that amount.

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