China distress specialist DCL seeks $500m for US dollar fund

The GP is also seeking RMB3 billion ($447 million) for its third renminbi vehicle and expects to reach a final close in the first half of the year, according to a source familiar with the situation. DCL declined to comment on fundraising.

The firm started talking to investors about a US dollar fund two years ago and engaged in soft marketing. At that time, AVCJ reported that it was looking to raise $300 million. An official launch took place in March.

Having a US dollar pool of capital at its disposal will give DCL greater investment flexibility. It will buy assets with a holding period of 3-5 years, typically portfolios of non-performing loans (NPLs) with good quality underlying collateral. Other targets are likely to include companies suffering from liquidity shortages and operating difficulties that nevertheless have good growth potential.

Across all its funds, DCL targets a broad array of credit instruments such as NPL portfolios, high yield bonds, defaulted bonds, and NPL securitizations. It also provides turnaround and restructuring capital to companies directly. Most investments are located in major cities such as Shanghai, Guangzhou, and Suzhou, where asset quality tends to be higher.

Foreign and local GPs expect a wave of NPL sales in China as the country’s slowing economy leaves banks with more bad debts to resolve. In addition to RMB6.3 trillion in acknowledged NPLs – of which RMB2 trillion still resides on banks' balance sheets – lenders have a further RMB3.4 trillion in special mention loans that show signs of stress, according to PwC.

Meanwhile, the consulting firm said in a recent research note that "many of the obstacles that deterred investors in the last cycle no longer remain," citing better maintenance of loan files, proper registration of underlying collaterals and a smoother and more predictable legal process as the major reasons for optimism.

DCL was founded in 2015 by former executives from CDH Investments and Shoreline Capital. The firm closed its debut renminbi fund in 2016 with more than RMB3 billion in commitments. Local institutional LPs accounted for the bulk of the corpus, including insurers, endowments, fund-of-funds, and academic research institutions. A second local currency vehicle, also of RMB3 billion, was raised in 2017.

CDH's wealth management platform is understood to hold a stake in the GP, but DCL operates independently under a separate management team.

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• Topics
• Greater China
• GPs
• Credit/Special Situations
• Restructuring
• Fundraising
• DCL Investments
• China
• GPs
• Fundraising
• Distress