Bad-debt management is a business not easy to understand. After spending two days trying to make sense of the 3.5cm-thick prospectus of China Cinda Asset Management Company, your columnist had to seek help from two bankers.
"Don't waste your time on the numbers. What really matters is the policy," seemed to be the gist of their response.
From the numbers, Cinda looks promising. Its profit increased from 2.1 billion yuan (HK$2.65 billion) in 2011 to 8.4 billion yuan in 2012 and stood at 3.5 billion yuan as of end of June.
Yet, bad-debt management and pricing in China, where professional liquidators do not exist, is never transparent. It can be the result of bad-loan managers trading assets among themselves at artificially inflated values; or local governments "repaying" bad loans with more failing businesses.
The sharp rise in Cinda's account receivables to income ratio from 16.25 per cent to 47.7 per cent between 2010 and June 2013 offers little comfort.
So what is Beijing's policy on Cinda? Its pre-IPO restructuring managed by the Ministry of Finance is quite telling.
In 1999, Cinda Corp was established to take over 396.3 billion yuan of bad loans at its original value from China Construction Bank.
The chance of recovery of these loans is close to zero. The ministry is, however, reluctant to take this over to give Cinda, the listing entity, a clean entry. (Bear in mind, the listing entity is separate from Cinda Corp and is controlled by the ministry.)
Instead, it sold the loans to the listing entity at 12.3 per cent of the original value in 2010. That still costs 48.6 billion yuan, though. Cinda is to repay it in five annual instalments of 9.7 billion yuan.
That is far from a good start for the listing entity. Over the years, Cinda has acquired bad loans at two different rates - commercial or market and a government-set rate higher than the market rate. Let's call the first, "good bad loan", and the second, "bad bad loan".
Although Cinda has acquired 28 billion yuan worth of bad loans on commercial terms over the years, the "bad bad loan" assets still form the bulk of its balance sheet. Besides, it has to pay the instalments to the ministry.
In the name of reforms, the central bank is also cutting its lending to Cinda. That has caused Cinda's loans from the central bank to drop from 16.4 billion yuan to 6.8 billion yuan between 2010 and June 2013.
To mitigate this impact, the ministry waived Cinda's obligation to repay the 24.7 billion yuan of bonds it had issued to CCB in exchange of the 1999 bad debt. It will now be settled with tax payable by Cinda and CCB, instead.
But that's not enough to guarantee Cinda a good profit to pay the ministry the 9.7 billion yuan instalments, or to generate a decent tax to settle the bond repayment and attract investors.
It needs to be a "monopoly" to stay afloat. After all, Cinda's management has already tried its hands at all sorts of businesses, without much success, such as securities, futures, investment banks, fund and insurance. It has even acquired two listed companies.
So in June 2010, the government gifted Cinda a policy to make it the first and the only asset management company to acquire distressed assets from non-financial enterprises.
That allows it to borrow money from the banks and pour them into dubious debt and assets of non-financial enterprises such as property developers and miners reeling from the government's cooling measures - in short, lending to cash-strapped private enterprises.
The book value of this kind of asset has grown 114 times to 49.3 billion yuan in June 2013, driving Cinda's revenue and profit growth.
With its bank borrowing rocketing 12.3 times to 104.1 billion yuan during the period, Cinda is eyeing the IPO proceeds to expand this new business.
To investors, the big question is whether this policy sweetener is sweet enough to hide the bitterness of the toxic financial waste that Cinda is peddling as asset.
By the way, Cinda has just written off 4.4 billion yuan from its holding in the loss-making aluminium producer Chalco.
Despite the policy sweetener, its return on equity has dropped from 25.5 per cent to 14.6 per cent between 2010 and June 2013. There are also management issues. Last year, the regulator found defects in its review of assets, disposal of assets, internal control, audit, cash and financial management - almost all aspects of management function.
Third, with three bad-loan management companies lining up for listing, how long Cinda will keep the "monopoly" access to non-financial enterprises' assets is anybody's guess.
That raises the question if the sweetener - Cinda's unique selling point - is at all sweet or merely sugar-coated poison.