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China Great Wall Asset Management Co., which is auctioning 8.1 billion yuan (US$976 million) of bad loans, will this month choose between bids by Goldman Sachs Group Inc. and Lone Star Funds, its adviser said.
The company, which manages bad loans made by the Agricultural Bank of China, the nation's fourth-biggest lender, will decide which of the two short listed companies will buy the loans before the upcoming National Day holiday, said Michael Harris, a partner in the corporate recovery unit of PricewaterhouseCoopers LLP in China.
China's banks are trying to rid themselves of the bad-loan legacy of years of government-led lending to unprofitable state-owned firms. A Goldman-led group of investors last year paid 10 cents on the U.S. dollar for a batch of loans made by the Industrial and Commercial Bank of China, and prices remain low because investors want to be sure they can get their money back.
"Pricing is artificially low at the moment because of uncertainty over government approvals, the costs of conversion on land rights and so on," said Harris, the Beijing-based PricewaterhouseCoopers partner. "If we had bankruptcy laws that were specific, that outlined the rights of debtors and creditors, then you would see a wave of activity in China."
Goldman Sachs and Lone Star are the finalists out of about six interested parties. Assets being offered to foreign investors include loans made to the textile and building material industries, said Great Wall spokesman Wen Xian-tang, declining further comment.
Great Wall has taken over more than 300 billion yuan of non-performing loans(NPLs) from the Agricultural Bank of China.
China's four-biggest state-owned banks, which account for about 70 percent of the nation's loans, have moved 1.4 trillion yuan of bad loans into four asset management companies. These disposed of 210 billion yuan of bad loans and other assets in the first six months of the year, the People's Bank of China said in July.
"In their first two years, these AMCs have made only a limited contribution to the resolution of the (NPL) problem," the Bank for International Settlements said in an August research report. "They have taken over less than half of the NPLs at the big four banks."
Great Wall disposed of 76 billion yuan, while Huarong Asset Manage-ment Corp., which manages bad loans for No. 1 lender, ICBC, sold 38.9 billion yuan of assets.
Orient Asset Management Co., which manages the bad debt of the Bank of China, sold 31.9 billion yuan and China Cinda Asset Management Co. sold 63.5 billion yuan in bad loans and assets from China Construction Bank.
(eastday.com September 24, 2002)
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