China Huarong Asset Management Corporation, the country's largest non-performing loan (NPL) manager, announced yesterday in Beijing it has agreed to sell four asset portfolios -- valued at 10.8 billion yuan (US$1.3 billion) -- to a bidding consortium headed by international investment bank Morgan Stanley.
This is the first time China's non-performing asset disposers (AMC) auctioned assets to foreign investors on a large scale, according to international practice, and this may pave the way for a quicker and more efficient settlement of the mounting NPLs, said Huarong President Yang Kaisheng yesterday.
Upon the deal, Huarong expects to recover at least 20 per cent of the assets sold to the consortium, much higher when compared to the recovery rates of first foreign-purchased problem assets in Japan, South Korea and Thailand, according to Jack Rodman, managing director with international accounting firm Ernst & Young, who assisted Huarong in the auction.
The Morgan consortium will form a joint venture with Huarong to manage the US$1.3 billion assets, said David Bednar, vice-president with Morgan Stanley Asia Ltd.
The consortium, consisting of world-level investment banks Lehman Brothers and Salomon Smith Barney, and two local companies in China -- KTH Capital and Zhongjin Fengde -- will be a majority holder of the joint venture by investing money equal to 10 per cent of the purchased assets, Bednar said.
After the establishment of the venture, Huarong and consortium members will try to dispose the assets by combining Morgan and its counterparts' international expertise, as well as Huarong's local knowledge, said Yang.
He added that the Chinese Government had been positive in utilizing foreign capital to recover Chinese NPLs, and policy obstacles will be gradually removed.
Bednar said he believed the four portfolios were representative of all Huarong's NPLs, and the deal will be the start of much larger businesses of Morgan Stanley in China.
Huarong initiated the assets auction at the beginning of the year. It selected 20 billion yuan (US$2.4 billion) of assets from its 500 billion yuan (US$60 billion) NPL pool, and launched an international road show in the middle of the year.
(China Daily November 30, 2001)
