China allows asset managers to buy bad debt directly

Three of China’s state-owned asset managers have been granted permission to buy distressed debt directly from corporates.

The Finance Ministry in China has granted licences to three asset management companies to invest in non-financial distressed assets, the South China Morning Post reported.

The move enables Huarong, China Orient and China Great Wall to buy bad debts directly from corporates as opposed to from banks and reflects efforts by China to address a recent surge in non-performing loans.

Benjamin Fanger, co-founder of private debt firm Shoreline Capital, told PDI last week that China is transferring bad debt from bank balance sheets into the market, in a bid to free up banks to do more traditional business, such as take deposits and lend.

Fanger’s firm closed an overflow fund on $195 million recently, to meet a new wave of non-performing loans and as a result of oversubscription on its Shoreline China Value III, which closed on $500 million last month.

Analysts speaking to the SCMP, raised concerns about the transference of loans to the asset managers, however, citing unclarity around the legal framework and creditor rights.