A venture run by Citigroup Inc, the world's biggest financial services company, agreed to buy non-performing loans worth 36.4 billion yuan (US$4.5 billion) in China, Asia's biggest bad-debt market.

The venture paid 546.6 million yuan (US$67.5 million), or 1.5 percent of the outstanding loan balance, for assets at China Huarong Asset Management Corp, said Silver Grant International Industries Ltd, Citigroup's venture partner, in a statement on November 25.

International investors are targeting China's estimated US$500 billion of distressed assets to boost their investments in the country. China transferred 1.4 trillion yuan (US$180 billion) of bad debt to Huarong and three other debt managers in 1999 in a drive to clean the balance sheets of its four biggest State-owned banks.

"Chinese banks have to get rid of massive bad loans before selling shares to the public," said Patrick Pong, an analyst at South China Research Ltd in Hong Kong. "As the economy continues to improve, there may be some good stuff among the non-performing assets and foreign investors are very keen to play treasure hunt in China".

The venture will hire Huarong to manage the loans, located across 27 provinces, and pay the agency 10 percent of the gross cash recovered. Huarong, which will get additional fees as it recoups more than 1.7 percent of the loan balance, is entitled to a maximum 70 percent of the excess cash should the recovery rate exceed 2.75 percent.

(China Daily November 29, 2005)