China Bad Bank Said to Plan $3 Billion Offering in Hong Kong

Photographer: Jerome Favre/Bloomberg

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Photographer: Jerome Favre/Bloomberg

Stock traders work on the floor of the Hong Kong Stock Exchange in Hong Kong.

China Cinda Asset Management Co., one of four funds created in 1999 to buy bad debts from banks, plans to seek about $3 billion in an initial public offering in Hong Kong, said two people with knowledge of the matter.

The state-owned asset manager may start the share sale in 2014, said one of the people, who asked not to be identified because the information is private. Cinda, which counts UBS AG among its shareholders, has yet to hire banks to manage the IPO, the people said yesterday.

Cinda, a legacy of China’s efforts to clean up a 1990s bad- loan crisis, has expanded into underwriting stock and bond sales, pitting it against Wall Street firms such as Goldman Sachs Group Inc. (GS) The sale may help revive Hong Kong’s IPO market, where proceeds dwindled to a nine-year low in 2012, data compiled by Bloomberg show.

“The company may attract investors with its diversified financial services,” said May Yan, head of China banking research at Barclays Plc. “Yet it would need to clearly explain its growth, sustainability and risks.”

The Ministry of Finance holds an 83.5 percent stake in Cinda, while the national pension fund owns 8 percent, according to a bond prospectus published in October. Zurich-based UBS holds a 5 percent interest, while Citic Capital Holdings Ltd. and Standard Chartered Plc have 2 percent and 1.5 percent, respectively, the document showed.

Cinda raised 10.4 billion yuan ($1.7 billion) selling a 16.5 percent stake to the pension fund, UBS, Citic Capital and Standard Chartered in March 2012, valuing the company at 62.9 billion yuan.

Convincing Investors

Board Secretary Zhang Weidong said in March last year that Cinda had begun preparations for a public share sale in domestic and overseas markets, adding that the company didn’t have a detailed plan or a timetable. Zhang, based in Beijing, declined to comment on the size of the IPO yesterday.

“They’ll first need to tell investors how much profit they have each year, where it comes from, and what their long-term strategy is,” said Rainy Yuan, a Shanghai-based analyst at Masterlink Securities Corp. (2856)

Cinda had 20,488 employees and 31 branches across China by the end of 2011, the bond prospectus showed. It has subsidiaries involved in financial leasing, fund management, insurance and real estate, according to Cinda’s website.

The so-called bad bank recovered 240 billion yuan from 1.5 trillion yuan of bad loans between 1999 and 2011, according to the prospectus. Cinda boosted profit to 7.3 billion yuan last year from 6.8 billion yuan in 2011, according to the prospectus and an e-mailed statement.

Loan Recovery

China’s government set up Cinda, China Orient Asset Management Corp., Huarong Asset Management Co. and Great Wall Asset Management Corp. in 1999 to help rid the banking industry of 1.4 trillion yuan of non-performing loans. Authorities initially gave these agencies 10 billion yuan of capital each and 10 years to offload the bad debt.

Huarong President Lai Xiaomin said March 5 that rising bad loans at Chinese banks may create an opportunity for asset management companies like his. Local-government debt is one of the top financial risks that China must tackle, Lai said at a congress meeting in Beijing.

Loans overdue for at least three months rose by 14.1 billion yuan in the three months ended Dec. 31, to 492.9 billion yuan, and mid-sized lenders and rural banks accounted for most of the increase, the China Banking Regulatory Commission said March 1. Bad loans at Chinese banks grew for a fifth straight quarter, the longest deterioration streak since the data became available in 2004.

Companies raised $8 billion through IPOs in Hong Kong last year, the least since 2003 and down 63 percent from 2011, Bloomberg data show.

To contact the reporter on this story: Fox Hu in Hong Kong at fhu7@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net

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