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SCMP Reporter

The State Council is reviewing a draft document that will lay down the rules for the use of foreign capital to clean up state-owned banks' non-performing loans.

The rules could be announced as early as next month, said Wang Wenjie, general manager of China Huarong Asset Management's international department.

Although Beijing has publicly endorsed foreign help in supporting the country's ailing banking sector, the document will for the first time address a number of murky regulatory issues.

The document would set official guidelines on possible forms of Sino-foreign co-operation in bad-loan disposal, said Zhu Li, deputy senior manager of the investment banking department at China Cinda Asset Management.

It also would clarify related issues such as tax treatment for foreign investors in bad loans.

The document was expected to clear the way for the birth of Sino-foreign joint ventures to manage non-performing loans, Mr Wang said.

It would further allow the four state-owned asset management companies to directly sell or transfer to foreign investors non-performing loans, shares acquired through debt-to-equity swaps and tangible assets used by borrowers as collateral.

The document was drafted by the Ministry of Finance, People's Bank of China, Ministry of Foreign Trade and Economic Co-operation and the China Securities Regulatory Commission.

Huarong and Cinda are among four state-owned asset managers set up by Beijing in 1999.

Each shelters one of the four state-owned commercial banks - Bank of China, Industrial & Commercial Bank of China, Agricultural Bank of China, and China Construction Bank.

The four have taken over non-performing loans with a book value of 1.39 trillion yuan (about HK$1.3 trillion).

The four banks are deemed insolvent by international standards after recording massive debts from irrational lending to mainly state companies.

In April, Cinda announced an agreement with Texas-based Lone Star Fund for a 50:50 venture to settle non-performing property assets, and is in talks with Deutsche Bank on a similar deal.

Ms Zhu said regulatory approval for both projects awaited passage of the new rules.

A marketing campaign is under way for non-performing loans and related assets.

Huarong officials have just concluded a tour of Europe and the United States where 10 institutional investors reportedly showed interest in a portfolio with a combined book value of US$1.9 billion.

Cinda officials would depart for a two-week tour of North America and Hong Kong next week to promote loans with a book value of more than 100 billion yuan, Ms Zhu said.



Foreign prop for bad loans under review