Loan auction delayed after objections
Foreign players cite unfair competition in the sale of assets
Cinda Asset Management has delayed an international auction of non-performing loans worth 6.5 billion yuan, originally scheduled for today, by 12 days after foreign investors complained of unfair competition in the bidding.
The auction to sell the loans from the Bank of China in Tianjin would now be held on June 27, a Cinda official said yesterday, citing a need to survey market conditions.
Potential bidders were also told that the sale and purchase agreement for the loans, due to be distributed on June 7, had yet to be finalised.
However, bankers believe the real reason for the delay is a protest by foreign investors against the planned participation of two other state-owned asset management firms, Orient and Great Wall, which foreign buyers say would put them at a disadvantage.
'There were some foreign houses that made a fairly pointed request to the government that [it] consider the purpose of holding an auction and, if [it] holds an auction, why would [it] have the asset management companies bidding among themselves,' a foreign banker said.
Cinda officials, while conceding that matters are under review, have been unwilling to address the competition issue publicly, saying only that their procedures are open and above board.
'We can't say which investors can or cannot buy the assets,' the Cinda official said. 'As long as our process is transparent and fair, whether or not investors want to compete for them is entirely their business.'
The asset management firms, also including Huarong, were created in 1999 to help state-owned banks dispose of their problem loans. They inherited loans worth more than two trillion yuan.
Backed by state financing and enjoying various exemptions and discounts, the asset managers did not have to consider funding costs and could afford to submit higher bids, another foreign banker said.
Asset managers are exempt from most taxes while foreign investors in problem loans are liable for a 5 per cent business tax and a 33 per cent enterprise income tax.
Although winners of loan auctions are supposed to make one lump-sum payment for the assets, there have been tales of cash-strapped asset managers trying to negotiate instalment payments.
Asset managers also receive a 50 per cent discount on litigation fees, which are equal to 1 per cent of the amount sought in court, and a full exemption of the upfront asset preservation fee, charged at 20 per cent of the amount sought by the plaintiff, but usually returned after successful litigation.
Foreign investors point to Great Wall's winning bid for a portion of problem loans from BOC's Qingdao branch as testimony to the competitive advantages asset management firms enjoy.