China distress-focused GP Shoreline raises $303m for Fund II

Shoreline China Value II, which has already invested nearly one third of its corpus, received commitments from a broad range of investors across North America, Europe, Asia and the Middle East, including endowments, foundations, pension funds, fund-of-funds, family offices and high net worth individuals.

The GP announced a first close of $215 million in December 2011, having set a full target of around $400 million. While this has not been reached, the fund is still substantially larger than Shoreline's debut vehicle, which closed at $178.2 million in 2008.

The fund will follow the same strategy that has been in place since Shoreline's inception in 2004, focusing on credit-related opportunities arising from the inefficiencies in China's financial system. These include debt restructuring, non-performing loan (NPL) portfolios, structured special situations financing, and distressed private equity and real estate.

"China's financial system allocates capital inefficiently, leaving many good companies without financing and bad companies with too much debt. The former produces special situations opportunities while the latter gives rise to distressed debt," said Ben Fanger, co-founder and managing director at Shoreline. "Now that China is facing a slowing growth rate, these types of opportunities have multiplied."

Speaking to AVCJ last year, Fanger noted that the four asset management corporations (AMCs) set up to handle bad debts emanating from China's Big Four state banks still have about $100 billion in legacy assets on their books, much of it from 10 years ago. Although the high-profile auctions of the mid-2000s are no more, Shoreline was still getting calls from AMC branch managers offering to sell loans.

The expectation was that the explosion in credit growth in China since late 2008 and the subsequent slowdown in the economy would lead to banks unloading more NPLs on to the AMCs. These conditions also create shorter-term special situations opportunities in the private sector.

Shoreline invests in a combination of NPLs and special situations opportunities, which account for 40% and 60%, respectively, of its $178 million first fund. It typically acquires portfolios of NPLs at $10-40 million, paying on average as little as $0.05 on the dollar per asset. It has a team of more than 20 investment professionals in China to manage these deals.

The capital committed so far from Fund II has gone into five investments - one NPL portfolio and the rest in special situations, typically asset-backed rescue financings that allow companies to bridge periods where they cannot get bank loans.

Notable Asia-focused special situations fundraises in the last year include SSG Capital Partners, which raised $400 million for its second fund and Clearwater Capital Partners, which closed Fund IV at $575 million. ICICI Ventures and Apollo Global Management have reportedly raised $325 million to invest in distressed Indian companies, while Tata Capital is looking to raise its maiden distress fund.

 

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

• Topics
• Fundraising
• Credit/Special Situations
• Restructuring
• Greater China
• Distress
• China
• Fundraising
• Shoreline Capital Management