China Seeks Foreign Capital to Help Manage Domestic NPAs

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Last updated at: (Beijing Time) Wednesday, January 01, 2003

China Seeks Foreign Capital to Help Manage Domestic NPAs

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At the end of 2002, the first two joint asset management companies were approved by China's financial authority, a virtual green light for the entry of foreign capital into China's domestic non-performing asset(NPA) market.

"China plans to expand the use of foreign capital to manage itsbad assets," said Yang Kaisheng, president of China Huarong Asset Management Company (CHAMC).

Yang said bad assets are like "an ice-cream you are holding in your hand", which, if you hold it too long, will melt away. It is crucial to handle China'a bad assets more efficiently before they "melt in our hands", he added.

The CHAMC conducted its initial trial of using foreign capital to handle domestic non-performing assets in February 2001. In 2002, four state-owned asset management companies concluded successful agreements with overseas investors to manage bad assets.

The latest official statistics show that China's four state-owned asset management companies had handled 232.3 billion yuan (29 billion US dollars) by the end of September 2002, over 10 percent of which were handled with the involvement of foreign capital.

China basically follows two patterns to employ foreign capital to handle domestic non-performing assets, said Xue Jie from the Oriental Asset Management Company (OAMC), one of the four state-owned asset management companies which has claimed successful handling of four billion yuan worth of bad assets by using foreigncapital since its establishment in 1999.

Xue said the first is to invite foreign investors. Local asset management companies invite foreign capital into China's domestic market to co-handle the non-performing assets by establishing a joint asset management company.

"This pattern is also called the CHAMC pattern within the industry since the CHAMC was the first one to cooperate with foreign investors in this way and has now become a major 'issuer of invitations'", Xue added.

The other pattern is called "the OAMC pattern" because of the intiative taken by the OAMC, Xue said.

"In this pattern we take the bad assets to the international market and sell them to overseas investors, most of which are medium and small investors", Xue said.

"Most medium and small investors want to be rewarded with considerable profits in a short period of time, and the OAMC pattern caters to that wish," Xue added.

Xue said the flexible policy China has adopted in inviting foreign capital to take part in the handling of China's bad assetshas proven to be quite attractive to overseas investors.

He said the OAMC has developed very good relations with big name foreign investors like Morgan Stanley and Goldman Sachs, as well as with some medium and small ones, in the past two years.

On December 6 of this year, an agreement was signed between theOAMC and Chenery Capital Incorporated (CCI), a medium-sized American investment company. In accordance with the agreement, theOAMC sold its 60 projects valued at 1.8 billion yuan to the CCI, which headed an investment group backed by scores of small American investors.

Roy Hann, managing director of the CCI, said that foreign investors are eager to get into China's bad asset market, especially in view of China's "continuous, fast and robust" economic growth.

Foreign investors, regardless of their size, see a huge potential for profit in China's non-performing asset market, Hann said.

"What especially delights us is the opportunity we have to contribute to the restructuring of many of China's state-owned enterprices," said Hann.

Larger-scale projects are in the pipeline for next year, said sources from the four state-owned asset companies, among them, a five billion yuan overseas sales project by the OAMC and CHAMC's second international bid scheme.

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