China-focused investor Shoreline Capital has upped the amount of capital it is seeking from investors for its third fund after seeing a recent surge in non-performing loans deals coming to market.
The special situations manager has raised $615 million in total, closing on a $500 million oversubscribed third fund and holding a first close of $115 million on an overflow fund, expected to reach $200 million.
Based on current indications of interest, Shoreline expects the overflow fund to be oversubscribed within the month, the firm said in a statement.
The Guangzhou-based firm is targeting non-performing loan portfolios, distressed special situations and non-distressed special situation investments. Around half of the $500 million has been invested in several transactions, with almost 1,000 non-performing loans in the portfolio.
Despite market observers recently expressing concerns that the Chinese government was failing to tackle a build-up of NPLs, banks now appear to be clearing their balance sheets as growth slows in the region.
Benjamin Fanger (pictured), co-founder and managing partner of Shoreline, attributed a new wave of large NPL deals to “both the market-oriented development of Chinese banks and the reform-minded Chinese government”.
“The build-up of NPLs from the lending boom between 2009 and 2011 was unprecedented. When growth started to slow and those loans came due, NPLs surfaced. Encouraged by the government and banking regulations, Chinese banks have started transferring NPLs in large quantities. The speed at which Fund III is being deployed is due to this new wave of NPLs,” Fanger said.
The pick-up in deals prompted Shoreline to go back to their investors with the option to increase their allocation. Shoreline China Value III received commitments from a broad investor base across US, Canada, Europe and Asia. The largest investors are government and private pensions, followed by endowments, foundations, insurance companies, family offices and high-net-worth individuals.
Shoreline has been operating in China for just over decade, having started up in 2004. The firm has around 30 professionals in China and manages close to $1 billion of capital in portfolios of non-performing loans, restructured single credits and special situation financings.
The manager closed its first fund on $178.2 million in 2008 and it’s second on $303 million in February 2013 with a larger base of investors across North America, Europe, Asia and the Middle East.