Opinion | Doubts cast over Cinda's business model as float looms
At issue are the asset manager's ownership, operating responsibilities and exit timing
From impoverished beginnings in 1999, Cinda Asset Management, one of the mainland's managers of bad assets, rose to become the darling of investors and the embodiment of the new China investment story.
Cinda, the bad-asset arm of China Construction Bank, is poised to start pre-marketing its US$2.5 billion Hong Kong float this week, but its convoluted business model has generated a flurry of questions concerning its ownership, operating responsibilities and future exits from troubled companies.
One of the key issues at Cinda is its business model of adopting a debt-for-equity swap, which has raised questions over the firm's ownership and operating responsibilities.
A banker familiar with the deal said the model created a moral hazard and could put pressure on banks' balance sheets as some of the cash-strapped companies still had the financial ability to pay interest.
"It is a question of how and when Cinda should repay the bank that originally owned the non-performing loans," the banker said.
Under Cinda's business model, it owns the financial interest and operates the troubled companies in the hope of a turnaround. In contrast, Huarong Asset Management, another bad-asset manager that is about to close its pre-initial public offering investment, has not been involved in operating the non-performing assets, but rather sells those assets quickly.
Furthermore, the bad-asset managers will take over problem loans from state-owned lenders at prices that are not transparent to outsiders as all the assets virtually belong to the State-owned Assets Supervision and Administration Commission.