PE firms to bid for China Huarong stake – report
A group of around 20 investors are said to be preparing to submit first-round offers for a minority stake worth $2 billion in China Huarong Asset Management ahead of the non-performing loan (NPL) manager’s IPO.
According to Reuters, KKR, BlackRock, The Blackstone Group and Bain Capital are preparing bids, as well as several sovereign wealth funds from Asia and the Middle East. The expected investment comes in the wake of a $2.9 billion IPO by China Cinda Asset Management, another of the country's four asset management corporations (AMCs) set up to absorb state-owned banks' bad debts.
Huarong is the largest of the AMCs with assets of RMB400.9 billion ($66 billion). It reported a net profit of RMB10.07 billion in 2013, up 44.7% year-on-year, as its purchases of distressed assets rose dramatically. The company has said it plans to focus on attracting strategic partners in 2014 as well as preparing to list domestically and overseas.
Cinda was established in 1999 and initially tasked with managing NPLs at Industrial and Commercial Bank of China (ICBC). Within a year of operation, it had accumulated bad assets worth RMB407.7 billion relating to loans made to 71,000 enterprises, most of them state-owned. Huarong retrieved capital through debt reorganization, recovery, auctions, interest collection and debt-for-equity swaps.
In 2012, the company won government approval to restructure as a joint stock financial group with operations covering asset management, banking, securities, trust operations, real estate and leasing.
With more loans expected to turn sour as China's economic growth slows, the AMCs may find plenty of opportunities to acquire bad loans, repackage the assets, and sell them on.
Cinda received a strategic investment of $1.7 billion in 2012 from CITIC Capital, UBS and Standard Chartered alongside the National Council for Social Security Fund (NSSF). Boyu Capital is also understood to have invested in the company at some point.
Cornerstone investors including Norges Bank Investment Management, Oaktree Capital Management, Och-Ziff Capital Management and Farallon Capital Management subsequently covered $1.1 billion of Cinda's IPO.
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