China Cinda Asset Management Corporation plans to sell a huge batch of non-performing loans (NPLs) to both Chinese and foreign investors in the first quarter, in a landmark deal regulators expect to set the precedent for the selling off of bad loans weighing down the local banking industry.

The 21.5 billion yuan (US$2.6 billion) of NPLs are the first batch of bad loans the asset management company (AMC) is selling from a 149.8 billion yuan (US$18 billion) tranche it purchased from the Bank of China (BOC) last June in market-oriented bidding participated in by the nation's four State-owned AMCs.

Cinda won a combined 278.7 billion yuan (US$33.6 billion) of NPLs in the bidding, with the remainder coming from China Construction Bank. The other AMCs - China Huarong, China Orient and China Great Wall, were set up alongside Cinda six years ago to handle the 1.4 trillion yuan (US$168 billion) of bad loans transferred from the nation's four State-owned commercial banks.

"The overall quality of this tranche of non-performing loans (from the Bank of China) is relatively good," Tian Guoli, president of Cinda, told a promotional session that gathered more than 80 institutional investors from home and abroad yesterday.

Forty-six percent of the tranche was guaranteed, and another 40 percent is backed by collateral, he said. And the loans are relatively concentrated, with those bigger than 50 million yuan (US$6 million) accounting for 60 percent of the total.

"There is huge investment value," he said, adding that the BOC would have kept the assets were it not for a plan to list on the stock market.

The 21.5 billion yuan batch the company is promoting comes in 16 portfolios, which involve some 1,500 borrowers scattered in eight different regions of the country. The bulk of the assets are concentrated in a few large projects, which Cinda said means easier due diligence and disposal work for buyers.

Cinda said it will complete seller's due diligence for the majority of the first batch before the end of February. Potential investors will perform their due diligence in early March, before a public tender is held near the end of that month.

Tian said his company had finished preparations for the disposal of all the assets in the BOC tranche, and plans to sell them in separate batches within the year.

Cinda is required to sell the assets it won in the bidding last year to other investors, instead of disposing of them on its own.

The Chinese authorities have been encouraging foreign investors to participate in the nation's distressed debt market and help accelerate key banking reforms, but foreign investors have complained about inadequate transaction flow and the long approval process.

Xu Zhichao, executive director of Cinda's legal affairs department, said his company has reached an agreement with the authorities to only report, instead of seeking approval, for transactions under a set limit, but did not elaborate.

(China Daily February 1, 2005)