China Development Bank (CDB) will cooperate with Swiss Bank affiliated UBS Warburg to manage and dispose of 40 billion yuan (US$4.8 billion) worth of debt-for-equity shares the bank holds.

It is the first time for a state-owned bank in China to hook up with a foreign investment bank to assist with managing such a large volume of government assets, which a CDB official revealed include several giant Chinese power firms.

These equity shares are transformed from debts of state-owned enterprises (SOEs) in such industries as raw materials and processing, said CDB President Chen Yuan Friday at the signing ceremony.

About 1 billion yuan (US$120 million) in corporate holdings of China Petroleum & Chemical Corp. (Sinopec), China's largest integrated petroleum and petrochemical company, are included in the cooperation package.

Some other big names in the list are China National Offshore Oil Corp. (CNOOC) and the Aluminum Corporation of China Limited (CHALCO).

"Only 30 percent of the equity is transformed from non-performing loans (NPLs) and the other 70 percent is made up of secure and profit-making assets," inside sources told China Daily.

Rodney G. Ward, chairman of UBS Warburg Asia, told China Daily that "foreign investors are very interested in China's equity field," apparently lured by the high return ratios of the Chinese equity market.

The 40 billion yuan (US$4.8 billion) worth of debt-for-equity shares are the "historical hangovers" of previous NPLs, Chen said, "CDB made the debt-to-equity-swap transactions at its own expense to help pull large and medium-sized SOEs out of the red."

The CDB also pays for and bears the risks of the disposal of debt-for-equity shares in the cooperation with UBS Warburg, Chen added.

Insiders predict that the disposal of CDB's increment equity shares is a lucrative business, and will not see the losses that occurred in the disposal of the other four state-owned commercial banks' NPLs.

The CDB sold 100 billion yuan (US$12 billion) of NPLs to China Cinda Asset Management Corporation in 2000.

As one of China's three policy banks, the CDB provides credit loans to national key projects in infrastructure construction and pillar industries, which secured a 90 percent principal and interest reclamation ratio for the bank last year.

The CDB's NPL percentage in 2001 was 7 percent.

(China Daily April 6, 2002)