China Huarong Asset Management Company, one of the country’s four state-owned bad-loan managers, will issue up to RMB 25 billion ($3.64 billion; €3.4 billion) of bonds in the next week to fund the purchase of distressed assets.
The bonds will be issued on China's interbank market between 18-22 of November targeting institutional investors in the national interbank bond market in the People’s Republic of China.
According to a statement, the firm will raise RMB 12.5 billion via three-year financial bonds, and another RMB 12.5 billion via five-year bonds.
Huarong was set up in 1999 to clean the first wave of bad debts in China at RMB 1.3 trillion yuan. Back then, the manager used government-backed funds to buy the state-run banks’ NPLs. Huarong and the three other state-owned bad-loan firms have since moved to buying bad debt at other types of Chinese companies as well.
Today, Chinese NPLs are generally estimated at RMB 5 trillion of in the Chinese banking industry, or at least six times larger than the previous cycle when estimates were around $500 billion. In order the curb the mounting bad debts in China, the government has been actively encouraging Chinese banks to recognise and sell NPLs.
Apart from four state-owned bad-loan managers, the opportunities in the distressed market have also attracted many foreign and domestic investors.
In addition, the Chinese government has also revived its debt-to-equity swap programme as another solution to the problem. China Construction Bank took the lead of the programme and has already deployed around $9.6 billion on five large-sum swaps since October this year.