China distress specialist DCL targets $466m fundraise

A first close of unspecified size took place earlier this year, according to a source close to the situation.

DCL has approximately RMB10 billion in assets under management across US dollar and renminbi funds. Its third local currency vehicle closed at RMB3 billion in 2020. The two predecessor vehicles closed in 2016 and 2017, also on RMB3 billion. DCL is currently in the market with its debut US dollar fund, seeking $500 million. There has already been a first close of sub-$100 million.

Hualing Zheng, DCL’s chairman, told AVCJ in a previous interview that the firm has generated net cash returns of about RMB10 billion since its inception in 2015, while deploying RMB11 billion. Fund I realized 100% of its principal in 2020. Cash distributions have totaled 8% in each of the past four years.

DCL articulates its strategy as a pyramid comprising three parts: NPLs form the base, distressed real asset restructuring in the middle, and distressed corporate restructuring on top. In the same interview, Tony Dai, a managing director at the firm, explained that NPLs form the base because DCL is the largest private equity buyer and that is where the supply of distressed assets is most stable.

"An NPL portfolio comprises anything between dozens and hundreds of loans. We select the best ones for real asset restructuring and corporate restructuring. The higher the tier, the harder it is, but there’s also less competition. By operating these underlying assets, we not only make money from a credit perspective, we also make it through asset value restoration,” he said.

In addition, DCL has cultivated a network of 700 potential buyers for assets, who give regular feedback on market demand. The firm claims that, on buying an asset, it often already knows who it will be sold to and at what price.

DCL has a strong preference for NPLs tied to assets in China’s core economic regions, which include first-tier cities and areas such as the Yangtze River Delta and Pearl River Delta. The general objective is to buy cheap, identify potential champions buried in portfolios of dross, and help them maximize value.

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