Blackstone acquires $200m China NPL portfolio – exclusive

The New York-based firm acquired the portfolio of mainly real estate-backed loans from Chinese asset management company Huarong AM last week.

Blackstone has acquired a portfolio of Chinese non-performing loans (NPLs) for $200 million from Huarong Asset Management, one of the big four asset management companies in China, PDI understands.

The purchase price is understood to be 47 percent of the portfolio’s outstanding principle balance (OBP) excluding accrued interest. The portfolio is composed of 160 individual loans owned by corporates in Guangdong province in South China and the majority of the loans are secured by real estate assets in the same region.

Blackstone is not the only foreign investor bidding in China’s NPL market. In June, Bain Capital Credit bought a $200 million-valued NPL portfolio in China following the launch of its $1-billion Asia credit fund.

Yet, despite transactions by some of the most well-known global investment houses, closing Chinese NPL deals has proved to be difficult for foreign investors due to the high pricing and the related risk-adjusted return.

“Unlike the US and Europe, every loan in China is a special situation,” said an Asian private debt fund manager. The manager explained that the cost to conduct due diligence and to go through the legal procedures is high in China.

There is also a return expectation mismatch, according to a recent report from PWC, which said many foreign investors are seeking high-teen IRRs to compensate for China’s risk premium while only high single-digit or low double-digit IRRs have been seen in the latest NPL cycle in China.

“If you are an investor that takes the view that the market for foreign investors will eventually open up, you need to start to build your deal sourcing, underwriting and servicing capability,” according to the report. “However, the amount of short-term uncertainty around the opportunity means that justifying the cost of making this investment is not simple.”