Finance

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

China Development Bank Corp., according to its website, provides financing facilities that serve the nation's major long-term economic and social development strategies. The central government's policy lender should bear that in mind as its turn as debt collector looks increasingly fraught.

Advance, Anyone?
China Development Bank's loans have risen sharply
Source: Bloomberg

More than half of $1 billion in advances that Beijing-based CDB provided to finance delistings of Chinese companies traded in the U.S. is tied up in two deals that have gone sour, court filings show.

The lender is applying to wind up Green Dynasty Ltd. after the Cayman Islands-based firm defaulted on repayments for a $185 million loan to take Fushi Copperweld Inc. private back in 2012. It's also seeking to wind up another Cayman company that borrowed $400 million to delist Harbin Electric Inc. in November 2011. Fushi Copperweld and Harbin Electric have previously been the target of short sellers that have questioned their accounting practices. Both have rejected the allegations.

You'd think CDB might be a bit gun shy after it had to renegotiate billions of dollars of loans to Venezuela. Perhaps as one of the world's biggest banks, with assets of 12.62 trillion yuan ($1.8 trillion) at the end of 2015, up from 5.11 trillion yuan at the end of 2010, it feels it can afford to have some of its generosity blow up.

Adding Bulk
Total assets at China Development Bank more than doubled in the five years through 2015
Source: China Development Bank annual reports

Shareholders of China Development Bank Financial Leasing Co., CDB's Hong Kong-traded aircraft leasing arm, probably wouldn't agree. The shares were sold at HK$2 ($0.26) each in an initial public offering last July and are now trading at HK$1.84, having lost almost 9 percent already this year.

Still, CDB seems committed to veering from its policy-bank roots. It was planning on financing Zoomlion Heavy Industry Science & Technology Co.'s since-aborted bid for U.S. crane-maker Terex Corp. and last month agreed to advance 20 billion yuan before 2020 to Shandong Inspur Cloud Service Information Technology Co., which provides cloud-computing services to local authorities.

Also, as Venezuela's travails show, governments aren't always safe borrowers either, something President Xi Jinping should keep in mind as his Silk Road initiative gathers pace and other emerging-market nations benefit from Beijing's deep pockets.

Not every commercially focused loan will go belly up -- Alibaba Group Holding Ltd. is probably a reasonable bet, as is Hong Kong Exchanges & Clearing Ltd., for example. But as CDB's Cayman Islands tangle shows, sometimes sticking to your knitting is the best policy.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net