PAG launches debut distressed fund in China – exclusive

PAG is the next international player eyeing the NPL market in China after KKR and Oaktree partnered with domestic AMCs to pursue the debt strategy.

PAG, the Hong Kong-based investment management firm, is launching its debut distressed fund in China, according to market sources.

The firm is targeting $400-$500 million for the fund and it is expected to reach a first close within the next six months. The strategy will see PAG look mainly at acquiring non-performing loan portfolios in China.

PAG declined to comment.

However, the firm has previously shown an early interest in China's NPL market.

“Both the beauty and the beast of the NPLs in China is the low level of transparency. Only with that, can you have the opportunity to make big money,” Eddie Hui, managing director at PAG, told PDI in May.

The debt-to-GDP ratio has increased to 282 percent in 2014, while the NPL ratio of the country's commercial banking sector has grown to 1.6 percent, reaching 1,186 billion yuan, according to the official figure from the China Banking Regulatory Commission.

“There are certainly more opportunities for NPL investors, whether they are domestic or foreign, they have lots more experiences in dealing and resolving with the NPLs in China. They also have a better idea of what they can do with the loans or the related collateral they buy, this time will be a lot more interesting,” said Howard Lam, partner at international law firm Latham and Watkins, commenting on the latest wave of NPL sales in China.

Private Equity KKR partnered with China Orient Asset Management and China Orient Summit Capital in January this year while Oaktree also joined with China Cinda Asset Management Corp to look at distressed assets in China as early as in 2013.

PAG, the $16 billion asset manager, has other debt strategies already active. It launched two loan funds providing subordinated and mezzanine debts to Asian companies. It closed its Asian Loan Fund II at over $800 million in June, while the firm's predecessor fund Asian Loan Fund I closed at around $700 million in 2012.