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SCMP Reporter

The asset management firm expects higher bid prices than in the first sale

Investors have shown a strong interest in the second non-performing loan portfolio auction by China Huarong Asset Management scheduled for mid-December.

Huarong, the asset management company  set up in 1999 to handle  non-performing loans  for Industrial and Commercial Bank of China, plans to sell down the loans  from its 22 provincial branches with an outstanding principal balance of about 20 billion yuan (HK$18.73 billion) in 1,300 enterprises.

The auction is open to international and domestic investors and yesterday was the deadline for potential bidders to register their interests with Huarong and its financial adviser Ernst & Young.

According to Huarong official Wang Hong-song,  the response from  investors, especially international ones, was stronger than for the first auction held in 1999.

'Domestic investors are still not familiar  with the loan recovery business, compared with  international investors,' Mr Wang said.

Huarong, with help from  Ernst & Young, is  performing due diligence work on the portfolio assets.

Mr Wang and Peter Chan, a partner at Ernst & Young, said detailed terms of the sealed bid had not been finalised yet. But Mr Chan said the bad loans  would be divided into multiple pools based on the nature, location, size and balance of the debt. Bidders could submit bids on one or all of the pools.

Sources said Goldman Sachs, Morgan Stanley, Lehman Brothers and even banks such as Standard Chartered had  expressed an interest in the auction.

Bankers said  30 to 40 per cent of the face value was in  collateral but the realisable value of the collateral was unknown.

Some debt  experts said problem loan  recovery in the mainland could be profitable.

Market speculation has it  that the consortium led by Morgan Stanley, which bought non-performing loans with  a face value of 10.8 billion yuan in the first auction, will break even by the end of this year.

It is said  that  Morgan Stanley paid eight to nine  cents in the dollar. This number, however, is  different from the official figure of 20 per cent of the face value as suggested by  Mr Wang.

Industry experts  said the first batch sale was more politically motivated to show the Chinese government's desire to clean up bad loans. The buyers  bid  low  as they were uncomfortable with the asset quality offered while the asset management company picked the better quality bad loans.

However,  this second auction would be different, a banker said. 'Huarong wants to make some money from this sale. They are certainly expecting a higher bid this time. Rumours are that the Chinese authorities have not been happy with the first  auction as the bid prices were  too low.'



Huarong loan auction draws strong response