China Vanke joins the hunt for bad assets, sets up new ‘distress’ fund with ICBC

China Vanke, one of China’s largest residential property developers, is setting up a fund in collaboration with China’s largest bank ICBC to invest in distressed assets, reflecting a structural shift in asset trading away from new property developments.

Analysts said the fund represents a landmark change where pre-existing assets are now perceived to harbour more business opportunities.

“China’s property market, especially in first-tier cities, is gradually entering the ‘existing asset’ phase, in which developers will increasingly scout opportunities in businesses such as distressed asset disposal, urban renewal, and corporate buyouts,” said Qiu Haibin, president of Orient Ruichen, a unit of China Orient Asset Management Company, one of China’s top four bad asset managers.

“Vanke is diversifying away from its traditional property development business. And by setting up funds with other financial institutions, it can hone its capability in bad asset management, which is a highly professional niche market,” he said.

Shenzhen-based Vanke said in a filing on Monday evening that it will invest 5 billion yuan (US$758 million) to set up a fund of funds, expected to be worth 10 billion yuan, together with two private equity funds under ICBC. The fund will target opportunities in restructuring, mergers and acquisitions and investment in distressed assets.

Vanke also said it will invest 955 million yuan in a 2.29 billion yuan fund with a similar mandate.