The China Construction Bank (CCB) announced Monday that it recovered 1.4 billion yuan (US$168 million) during last week’s auction of mortgaged assets. Sold were 153 real estate projects, which had a combined book value of about 4 billion yuan (US$481 million).
"It is the first time that a Chinese commercial bank has disposed of its non-performing assets by using an international bulk-sale auction format," said Yang Xiaoyang, head of the bank's special assets resolution department.
The real estate projects, scattering through 18 provinces and municipalities, were divided into three groups by geographical location.
A Morgan Stanley-led consortium was the successful bidder for two of the groups, while a Deutsche Bank-led consortium snared the remaining one, Yang said.
Jack Rodman, partner and managing director of Ernst & Young, the financial adviser for the transaction, said: "The successful result reflects the investors' perceptions of China, the assets, the seller and the way the transaction was conducted."
Yang said it was inevitable that the CCB would dispose of its non-performing assets on the market.
"The efforts will continue," he said. "We plan to sell 46 billion yuan (US$5.5 billion) worth of debt-to-equity assets through the market."
The bank must clean up its balance sheet, as it intends to make an initial public offering later this year or next year. It also plans to introduce strategic investors.
Wang Zhao, a researcher with the State Council's Development Research Center, said China's "Big Four" state-owned banks will all have to sharpen their competitive edges before the end of 2005, when foreign banks will have unfettered market access under China's WTO commitments.
"The banks will have to lower their rates of non-performing loans, get rid of historical financial burdens and raise capital adequacies to international standards," he said.
The capital adequacy ratios of commercial banks must reach 8 percent, the minimum required by the Basel Capital Accord reached by international banking managers and the nation's commercial banking law.
"This goal will have to be achieved before China's commercial banks, especially the Big Four, are listed," Wang said.
CCB, which was chosen by the central government as a pilot project to become a joint stock bank, has handed a US$22.5 billion bailout from the government in late December.
CCB President Zhang Enzhao said the bank's goal is to become a modern shareholding commercial bank that has the potential to become a competitive heavyweight in the global financial market.
During the first quarter, the bank earned 16.0 billion yuan (US$1.9 billion) in operating profit, an increase of 32.4 percent from a year ago.
By the end of March, the bank's non-performing loan ratio was 8.77 percent, a drop of 0.35 percent compared with the beginning of the year.
(China Daily June 1, 2004)
