Silver Grant stake comes amid foreign demand for China's distressed asset market Citigroup Global Markets has agreed to buy a 9.75 per cent stake in bad-loan specialist Silver Grant International Industries for $445.6 million in cash, amid fierce competition among foreign investment banks for a slice of China's distressed asset market. It has also agreed to subscribe to a convertible note with a principal of US$52.5 million, potentially boosting its interest in the red chip to 16.42 per cent. Silver Grant has also entered into a memorandum of understanding with Citigroup Financial Products to set up a venture that will invest in non-performing loans and other distressed assets in China. An agreement has yet to be reached, but the aim is to make non-performing loan investments on a 50-50 basis. 'A joint venture with [Citigroup Financial Products] will provide the company with the financial resources to take advantage of investment opportunities in the NPL market in China in the coming years,' Silver Grant said. Citigroup Financial is also exploring the possibility of acquiring non-performing loan investments from Silver Grant, the company said in a stock exchange announcement. Under the agreement, Citigroup Global Markets will subscribe to 169.45 million new Silver Grant shares at $2.63 each, representing a 19.69 per cent discount to the closing price of $3.275 last Wednesday. Silver Grant has been suspended since Thursday pending the announcement, but has applied to resume trading today. The United States investment bank, which has been keen to forge a relationship that will enable it to play a greater role in the mainland market for distressed debt, will also subscribe to a convertible note with a 1.5 per cent coupon and give it the right to subscribe for 138.8 million shares within a five-year period at a conversion price of $2.95 each. The net proceeds from the sale of new shares and the convertible note will be about $845 million, which is intended to be invested into non-performing loans if any such investments can be completed within one year. Otherwise, the money will go towards general working capital, Silver Grant said. The Hong Kong-listed company made a strategic shift from property and infrastructure investment to become a financial services specialist in the disposal of non-performing loans earlier this year. Silver Grant primarily sources its non-performing loans from China Cinda Asset Management, which holds 23 per cent of its stock. Cinda was one of the four asset management agencies set up in the late 1990s to help dispose of US$169 billion in bad loans from the big four banks. In September this year, Silver Grant secured a record 56.9 billion yuan transfer of distressed assets from Cinda for 853.5 million yuan, the biggest shift to either a domestic or foreign commercial entity since Beijing began using commercial means to dispose of bank assets. The company in February bought Macau-based bad loans worth $2 billion from Cinda. Senior executives at Silver Grant have lauded their ability to capitalise on the firm's special relationship with Cinda, saying it gives the company an inside track to bargain for deeper discounts. Silver Grant posted a net profit of $122.91 million for the first half of the year, up 101 per cent year on year, helped by property asset disposals in Macau. Last year, it recorded a net profit of $182.8 million.