Global distressed-debt funds circle China again, eye $256bn bad-loans market

Traders eye stock prices in Beijing on the first day of trading in 2018. A massive increase in non-performing loans throughout the Chinese economy will be a key consideration for investors in 2018 as distressed debt funds move into the country. (Reuters)
Updated 05 January 2018

Global distressed-debt funds circle China again, eye $256bn bad-loans market

BEIJING: Global distressed-debt specialists are stepping up their dealmaking in China after a decade, betting that the country is becoming serious about developing a market to tackle its $256 billion of official non-performing loans (NPLs).

Groups such as Blackstone Group and Bain Capital Credit made their first investments in recent months, amid surging write-offs by banks and indications that China’s commercial bad loans market is set to deepen.

Oaktree Capital Group last month agreed to buy a portfolio of distressed loans with a face value of 3.1 billion yuan ($476.70 million), its fifth deal, according to Tony Rao, a partner with law firm Alpha & Leader, which helped provide due diligence on the deal.

More overseas cash is set to enter the market in 2018, said Rao, in spite of rising competition with local buyers that has sent average prices above 50 cents on the dollar.
Oaktree declined to comment.

NPLs on commercial bank balance sheets officially amounted to 1.67 trillion yuan ($256.80 billion) at the end of September, or 1.74 percent of all loans. Overdue loans — those not yet technically considered bad — reached 3.4 trillion yuan. Many analysts estimate actual amounts are much higher.

Loan write-offs by commercial lenders, one indication of how deeply banks are cleaning house, jumped 50 percent to about 1.4 trillion yuan in 2016, according to estimates by UBS analyst Jason Bedford.

An initial wave of foreign interest in China’s bad loans a decade ago, led by big western banks, faded as deals failed to materialize and legal uncertainties multiplied.

But China’s distressed-debt market has become more commercialized since then. Once the monopoly of the Big Four asset management companies established in 1999 to take over bad loans from the country’s biggest lenders, the market today includes at least 55 regional managers while sales channels for bad loans now include online auctions, over-the-counter trades at local asset exchanges as well as NPL securitization.

“The market has broadened,” said Phil Groves, president of DAC Management, a China-focused alternative investment manager and bad-loan servicing company that was bought by Blackstone last year. “There’s more to buy, bigger portfolios, and different types of credit available.”

Blackstone acquired its first-ever Chinese commercial loan portfolio for $195 million in August — the same month that Bain Capital Credit did its first-ever deal with the purchase of $200 million in mostly real estate backed loans in the coastal province of Jiangsu.

Bain is now looking at other real estate-backed portfolios and building a loan servicing team to handle future deals, said Kei Chua, Bain’s Hong Kong-based managing director.

Global distressed-debt players said they’re encouraged by ongoing legal and structural changes in China — particularly in coastal regions — that has seen the emergence of professional appraisers and brokers, databases to check asset titles and liens, and greater certainty in the courts.

Foreign investors have for now mostly stuck to real estate deals because that market is better established with easily-valued collateral. Oaktree’s latest portfolio, consisting of 178 loans in China’s Pearl River Delta, is mostly but not entirely property-backed, according to Alpha & Leader’s Rao.

China’s bad loans market is, however, dominated by local distressed funds, many of which set up in the last two years, fund managers and advisers said, which has increased competition and raised NPL prices.

A national industry association set up just two years ago has grown to more than 600 members from 200 initially.

“There isn’t a national market,” said Deng Yanshan, executive director for investment at Lakeshore Capital, a domestic asset manager which oversees 2.5 billion yuan in funds. “This is still a localized business that’s based in provinces, counties and cities.”

International firms must also deal with currency controls and related government approvals — creating an execution risk, particularly on timing and hedging costs, that their local rivals do not have to bear.

But Ted Osborn, an NPL specialist partner at PwC in Hong Kong, said the outlook for global distressed asset buyers remains good.

“When China gets serious and needs to start selling big chunks of bad loans, foreigners are still the only ones with organized capital to do it.”

 


Emirates launches airbridge between Dubai, Lebanon emergency relief 

Updated 14 August 2020

Emirates launches airbridge between Dubai, Lebanon emergency relief 

  • Customers of Emirates will be able to donate cash or pledge their Skywards Miles to the airline for the aid
  • Emirates SkyCargo will also provide 20 percent reduction on air freight transportation charges for approved shipments

DUBAI: UAE national carrier Emirates SkyCargo plans to ramp up its freighter operations to Lebanon with 50 flights to deliver emergency relief in the wake of the Beirut port blast that killed nearly 200 people.
Customers of Emirates will be able to donate cash or pledge their Skywards Miles to the airline for the aid, state news agency WAM reported.
The Emirates Airline Foundation will coordinate shipments of urgent food, medical supplies with NGO partners to ensure donations directly help those affected on the ground.
Emirates SkyCargo will also provide 20 percent reduction on air freight transportation charges for approved shipments, underscoring its commitment to expedite emergency relief efforts to Beirut.
“Today, the world is banding together to stand in solidarity with Lebanon, providing urgent relief and immediate recovery support to those affected by this tragic disaster,” Chairman and Chief Executive of Emirates Airline & Group, Sheikh Ahmed bin Saeed Al-Maktoum, said. 
“Emirates supports the UAE’s ongoing humanitarian efforts to support Lebanon and is committed to bolster its global emergency response to ensure that it can support organizations which provide urgent care, shelter, food and medical support to the Lebanese people,” he added. 
Emirates said that it had dispatched several charter flights carrying food, clothing and medical supplies donated by various grassroots organizations in the UAE to Lebanon.