Bain to buy $200m Chinese NPL portfolio

The transaction size represents the outstanding principal balance (OPB) of the loans – the private equity firm will pay less than this, with the size of the discount dependent on the quality of the portfolio. BCC previously told AVCJ it was predominantly seeing RMB200-300 million ($30-44 million) investments in portfolios with OPBs of anything from RMB600 million to RMB2.5 billion.

According to a source familiar with the situation, the portfolio was sourced from China Huarong Asset Management and comprises loans tied to commercial, retail, hotel and industrial real estate assets. BCC declined to comment on the origin and content of the portfolio.

Indications that China was set for another wave of distressed debt began to emerge a few years ago, as the credit boom instigated in 2008 to minimize the local effects of the global financial crisis reached its logical conclusion. Resources assigned to pursuing NPL deals has increased in the last year or so, with the likes of BCC, Lone Star, Oaktree Capital Management, Avenue Capital Group, PAG and Goldman Sachs all said to be tracking opportunities.

China’s loan book has quadrupled in size since the mid-2000s when investors last piled into the space only to find that deal flow was not as rich as expected. Assuming the banking industry’s NPL ratio is five times the official estimate of around 1.7%, what is seen by some as a $200 billion opportunity could reach $1 trillion (other estimates are as much as $3 trillion, based on a higher perceived NPL ratio).

Much rests on the government making banks take action, but investors are encouraged by an improvement in the quality of loans compared to the last cycle, with more debts tied to private sector companies that are still in operation and properly collateralized. They also point to a stronger enforcement infrastructure: courts have become increasingly efficient in resolving NPL cases, making it easier for investors to predict cash flows, and more information on debtors is available.

This transaction represents BCC’s first significant foray into the NPL space in China, although it has completed more than 20 global credit portfolio deals with claims of more than $10 billion since 2011. The firm is targeting up to $1 billion for its first Asia special situations fund and NPLs are expected to account for as much as half of the overall China activity.

“Bain Capital has one of the largest and most experienced investment teams in the region and we are well positioned to capture significant opportunities arising from China’s largest and growing NPL market,” Kei Chua, managing director and head of China and North Asia for BCC, said in a statement.

As of March, BCC had 14 people in Asia dedicated to special situations – other professionals in the firm provide support – and there are more in China through arrangements with asset servicers. ShoreVest Capital Partners, which spun-out from longstanding China NPL player Shoreline Capital last year, will act as master servicer on this particular portfolio.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Credit/Special Situations
• Restructuring
• China
• Distress
• Bain Capital Asia
• ShoreVest Capital Partners