Business
November 29, 2005
Citigroup acquires China's bad assets worth 36.4 billion yuan
The world's biggest finance company Citigroup has signed an agreement with China's Huarong Asset Management Corporation, according to which it will acquire China's NPL assets worth 36.4 billion yuan, making the deal the largest one in acquiring bad assets.
Citigroup acquires the non-performing-loan-related assets through its JV in Hong Kong, Silver Grant International Industries Limited. After signing the agreement with Huarong, Silver Grant sold 50 percent of the assets acquired to Citigroup for $ 33.7 million. The acquisition is Citigroup's largest one at China's bad debts disposal market. It is also the biggest one in the history of foreign capitals' acquisition of Chinese banking's bad debts.
In a joint statement issued with Silver Grant, Citigroup says Silver Grant will pay 546.6 million yuan (approx $67.4 million) for the bad assets. The price is only 1.5 percent of the book value of the bad assets. Silver Grant is a public listed company in Hong Kong. Citigroup holds 17.8 percent of its shares.
It is reported the bad assets are distributed in 27 provinces in China. Huarong Asset Management Corporation will continue to manage the assets. Silver Grant will pay 10 percent of the deal to Huarong as management fee.
"To speed up reform of the financial system, China must dispose of the huge amount of bad assets of the state-owned commercial banks as soon as possible, so that they can go public after the joint-stock reform is completed. In the meantime, the prosperous Chinese economy will create many good opportunities for disposal of the bad assets. For some foreign investors, China's huge bad asset is an attractive cake," said an analyst of Hong Kong South China Research Center.
China has bad assets worth $ 500 billion, which impedes China's reform of financial system. But they are targets of foreign investors too. The investors hope to realize rapid expansion pf capitals in China by acquiring the huge amount of bad assets.
To alleviate burdens for the four state-owned banks, China set up four asset management companies in 1999. They are China Great Wall Asset Management Corporation, China Cinda Asset Management Corporation, China Huarong Asset Management Corporation and China Orient Asset Management Corporation. It is reported that bad assets worth 1.4 trillion yuan was given to the four companies for disposal at that time.
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Statistics published by China Banking Regulatory Committee show China's four major asset management corporations have cashed back 137 billion yuan from disposal of bad asset worth 675.06 billion yuan by the end of 2004. Within them, foreign investment banks acquired bad asset worth $6.016, about one tenth of the total amount, Statistics of Pricewaterhouse Coopers indicate.
Insiders say overseas investors or asset management companies usually spend 5 percent of bad loans' book value to acquire them. The highest price rarely goes beyond 30 percent of bad assets' book value.
By Peopel's Daily Online
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