China Huarong taps bond market to buy distressed assets

Unlike the first wave of NPLs in China, today the AMC has to raise capital from the public market to purchase distressed assets.

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.