Oaktree Capital Group LLC (OAK), the world’s biggest distressed-debt investor, is joining with the Chinese government-backed China Cinda Asset Management Co. to buy soured loans and troubled assets in Asia’s biggest economy.
The venture will be equally owned by Oaktree and Cinda, according to a statement today. The firms plan to invest as much as $1 billion, with half of the money coming from funds run by Los Angeles-based Oaktree, and may increase that amount depending on the success of the deals, said a person familiar with the agreement, who requested anonymity because those details aren’t public.
Carissa Felger, a spokeswoman for Oaktree at public-relations firm Sard Verbinnen & Co., declined to comment on the commitment plans.
Oaktree sees “tremendous bargains” in China, the second-biggest economy behind the U.S., and is buying stocks in companies after valuations tumbled, Howard Marks, the firm’s co-founder and chairman, said this month in Shanghai. China’s growth is slowing as the ruling Communist Party curbs an unprecedented $1.5 trillion lending boom that sent residential real estate prices to all-time highs and imposed record liabilities on local municipalities.
“Investors have lost all confidence in China,” Marks said at the Nov. 4 media briefing. “The swings of the pendulum were excessive,” he said, referring to investor pessimism following the optimism he perceived three years ago.
Oaktree was approached six weeks ago by investment bankers seeking a partnership for Cinda, which specializes in distressed real estate and also buys soured corporate loans and other assets under financial pressure, according to the person with knowledge of the process. Oaktree plans to expand its staff in Beijing, dedicate some of its teams in the U.S. and London to deals with Cinda, and will relocate a senior real estate dealmaker to Hong Kong, the person said.
Cinda, formed in 1999 and majority-owned by the Chinese Ministry of Finance, is preparing to sell shares to the public in Hong Kong. Oaktree made a $53 million investment in the company as one of several early backers, according to the person.
“Cinda’s experience and expertise in China is unparalleled and will afford us a unique opportunity to participate in China’s distressed-debt markets,” John Frank, Oaktree’s managing principal, said in the statement today. “At the same time, we look forward to sharing our global insights and expertise with Cinda.”
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