US firms to control China NPL ventures
Foreign investors are to be permitted to take controlling stakes in joint ventures set up to take over bad loans from China's asset management companies.
United States investment bank Goldman Sachs is poised to take a 70 per cent stake in one venture, sources say, following an earlier report that a consortium led by Morgan Stanley will have a 65 per cent in another venture.
The remaining stakes in the two ventures are to be held by China Huarong Asset Management, which sold its non-performing loans (NPLs) to the US firms in tranches last year.
Huarong was set up in 1999 to take over bad assets from China's biggest commercial bank, the Industrial and Commercial Bank of China, and is a key element of Beijing's strategy for clearing banks' bad loans.
Officials from Goldman and Morgan Stanley could not be reached for comment yesterday.
An executive close to the deal said yesterday: 'The fact that [the Ministry of Foreign Trade and Economic Co-operation] gave the go-ahead to foreign controlling stakes in these ventures is because China does not have expertise in this area.'
He said Morgan Stanley, for instance, had valuable experiences in bad-loan sales in emerging markets such as South Korea, and had a lot to teach Chinese companies.
An official announcement on the roll-out of the joint ventures is expected soon.
The Morgan Stanley-led joint venture, to be called China One, will take over distressed assets worth about 10.8 billion yuan (HK$10.18 billion). Morgan Stanley's partners in the consortium includes Lehman Brothers, Salomon Smith Barney and some domestic firms.
The Goldman joint venture will take over bad assets worth about two billion yuan.
The ventures will focus on tackling their bad assets through sales, agreements with debtors and auctions.
The ventures hope for a recovery rate of more than 20 per cent on the face value of the debts.
China needs to tackle about 1.4 trillion yuan in bad loans taken off the books of the big four state banks by asset management companies over the past three years.
As China's first bad-loan sale to foreign investors, the Huarong deal is being closely watched as a test case for future sales.
However, concerns remain over the resolution of the bad loan crisis because of the mainland's opaque bankruptcy and foreclosure procedures and the enforceability of the contracts.
