Foreign Capital Eyes China's Non-performing Assets

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Last updated at: (Beijing Time) Tuesday, December 17, 2002

Foreign Capital Eyes China's Non-performing Assets

Signs indicate that more and more foreign investors are "fond of" the non-performed assets in China and now it is going to be one of the main channels for financial assets management companies to use foreign capital for the handling of the non-performing assets.

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Signs indicate that more and more foreign investors are "fond of" the non-performing assets in China and now it is going to be one of the main channels for financial assets management companies to use foreign capital for the handling of the non-performing assets.

To tap for international market from the home market

The April of last year saw the Xinda Financial Assets Management Company handle by introducing a strategic investment from abroad the non-performing assets of Bengbu Thermal Power Plant. It recovered a capital-and-interest-sum of RMB 85.12 million yuan, thereby breaking up for the first time a path for handling non-performing assets by using the foreign capital. Later on, other financial management companies followed suit one after the other, making the way of handling the non-performing assets to "bloom and bear fruit" in China.

According to the statistics, by the end of last September, 4 financial assets management companies handled the non-performing assets totaling RMB 232.3 billion yuan (not counting in the share-transfer debt), of which 10 percent were brought to finish by way of inviting the participation and handling of foreign capitals.

Combination of "introducing-in and going-out"

The sum-total of the non-performing assets purchased by the 4 financial assets management companies comes to a total of RMB1.4 trillion yuan. It's very hard for the home market alone to digest so large a sum of non-performing assets. Moreover, the non-performing asset in value is an easily consumed goods along with the time going by and objectively it requires a very quick settlement.

The international bidding by Huarong Financial Assets Management Company has attracted powerful investor to handle directly the non-performing assets by setting up a cooperative company in China while the Dongfang Company followed the other way round by going out from China. With the assistance of foreign investors it has drawn in a number of small and medium investors from alien lands to invest for the settlement of the non-performing assets in China.

Though the financial assets management companies follow different ways in cooperation with foreign funds, however, to use foreign capital in settling the non-performing assets is their strategy in common for development. They've defined the two orientations for realizing the settlement of non-performing assets with high efficiency by facing the two markets domestic and international.

Why foreign capital is "in good graces of" the non-performing assets

Now the foreign capital has successfully entered the non-performing assets market for settlement in China, which, if viewed in an ordinary way, how an international buyer can be "in favor of" the worthless non-performing assets in China?

In the non-performing assets, the foreign capital is in favor of the value for investment. The value for investment means to realize an added value in operation, said Liu Zhongsheng, general manager of the Management Department of the Great Wall Financial Assets Management Company. By buying the credit rights of the non-performing assets the foreign buyer is to squeeze out added value by developing it. Take the non-performing assets in real estate for instance it has a comparatively big potential to be developed. Besides, by way of buying, acquisition and reorganization the foreign buyer can enter the Chinese market at a low cost.

In an interview with the reporter, Chen Jiaqiang of the Ernst & Young Accountant Firms expressed that the Chinese market for handling the non-performing assets is a newly booming market as compared to other markets and it is also a gorgeous market with many opportunities for investment. For the moment, the foreign investors find it good to reap a high return in a new market on the one hand and on the other they are getting prepared for a long-term investment. As revealed, the Morgan Stanley, Goldman Sachs, Lehman Brothers and Solomon Group all these investment banks are ready to set up fixed offices for taking a part in the settlement of the non-performing assets in China.

Relevant rules and regulations need to be improved

To handle the non-performing assets by introducing in the foreign capital is an utterly newborn thing in China, which needs to be further tapped and improved. What the foreign investors are most bothered about is whether they can get guaranteed later on in law so far as their transactions and operations are concerned because all these are almost blank and pale in the existing laws and regulations in China. Experts say, to invest in the non-performing assets is tantamount to doing gold-wash and it needs to perfect the laws and regulations for attracting more "gold-rushers".

For foreign capital to enter China, though the "provisional regulations for financial assets management companies to solicit foreign capital for participating in reorganizing and handling the assets" published in November of last year cleared out the barrier in policy yet it is still short of related regulations to specify as to how to carry it out.

As learned, there are four channels for foreign investors to enter the market for the settlement of the non-performing assets in China: one being cash buyout, another to set up a joint-venture company, the 3rd being that of a company in partnership and the 4th the share acquisition. Up to now, the two cooperative companies set up jointly with Huarong Financial Assets Management Company are already in successful operation and has some rules to follow, but there is none as to other patterns. Therefore, China is in dire need of working out "a complete set of" solution plans for foreign capital to enter China.

By People's Daily Online

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