Agricultural Bank of China

Great Wall tops 'final feast' bad loan sale

PUBLISHED : Monday, 27 June, 2005, 12:00am
UPDATED : Monday, 27 June, 2005, 12:00am

China Great Wall Asset Management was the biggest winner at a weekend auction of about 450 billion yuan of impaired loans from Industrial and Commercial Bank of China (ICBC).

The result came as a great relief for Great Wall, which was perceived to be fighting for survival after losing out to its three state-owned peers in earlier loan auctions over the past year. It has also been a laggard in terms of its loan-resolution track record.

Great Wall walked away with about 17 of the 35 ICBC loan pools offered at the auction organised by the People's Bank of China, sources close to the four state-owned asset management companies said yesterday.

Great Wall's pools, mostly consisting of assets in inland areas and the rustbelt northeastern provinces, accounted for more than 40 per cent of the loans on offer by nominal value.

'It was an overwhelming win,' one source said.

Separately, China Orient Asset Management bought about 10 pools of loans concentrated in coastal provinces, accounting for about 25 per cent of the loans on offer.

China Cinda Asset Management and China Huarong Asset Management, widely regarded as the most successful asset managers, ended up with five and three pools respectively, sources said.

Formed in 1999, the four asset managers were given the responsibility to each help one of China's Big Four state banks resolve a mountain of impaired loans weighing down their asset quality.

They have been given until the end of next year to tackle the 1.39 trillion yuan of non-performing loans transferred to them in 1999.

To force the four asset mangers to operate along commercial lines, the government is now making them compete for doubtful loans offloaded by Bank of China (BOC), China Construction Bank (CCB) and ICBC since 2003. The three state giants are engaged in massive financial overhauls and corporate governance reforms before their home market is fully opened to foreign competition in 2007.

Local media referred to Saturday's sale of doubtful loans from ICBC, the third of the Big Four to begin financial restructuring, as the asset handlers' 'final feast' - as it was the last chance for them to acquire large chunks of non-performing loans on the primary market. A state bailout of the weakest Big Four bank, the Agricultural Bank of China, is widely regarded as being years away.

Cinda, deemed the most successful asset managers for its resolution progress and high cash-recovery rate, won last year's auction of 278.7 billion yuan worth of BOC and CCB 'doubtful' loans, the middle of three problem loans categories. It later received another 56.9 billion yuan of CCB 'total loss' loans, the worst category.

Huarong, which absorbed problem ICBC loans in 1999, had earlier been charged with resolving 246 billion yuan of ICBC 'total loss' loans.

Orient bought 130 billion yuan of CCB doubtful loans from Cinda and was also put in charge of resolving another 140 billion yuan of BOC total loss loans last year.

Great Wall, which absorbed loans from Agricultural Bank of China in 1999, had a historical cash recovery rate of only 10.41 per cent by the first quarter - the lowest of the four managers and about 30 per cent of Cinda's recovery rate.

Having failed to buy no-performing loans since 2003, it was rumoured to be a prime target for closure or merger into one of the stronger managers.

Unlike the controversial all-in-one disposal of BOC and CCB doubtful loans to Cinda last year, ICBC's 450 billion yuan portfolio was divided into 35 pools along geographical lines to ensure each asset manager would be included.

To prevent over-pricing, the winning bid for each pool was that closest to but higher than the average bidding price of the asset managers.

The auction's outcome means weaker asset handlers will not have to be merged or shut, which could have resulted in lay-offs for thousands of employees.

Great Wall and People's Bank of China officials contacted yesterday declined comment.