Shift in investment strategy unveiled
(China Daily)
Updated: 2005-04-26 08:42

The International Finance Corporation (IFC), the private sector arm of the World Bank Group, is shifting its financial sector investment strategy from its banking segment to its non-banking sector, IFC's country manager for China told China Daily in an exclusive interview.

"IFC has invested in six banks in China. So at this point, we'd like to look at other segments of the financial sector," said Karin M. Finkelston, IFC's Senior Country Manager for China and Mongolia and associate director for East Asia & Pacific Department.

She said that this year, IFC has a special interest in two areas in terms of the non-banking financial sector (NBFS): one is non-performing loans (NPL) and distressed assets, the other is the securities market.

Last year IFC invested up to US$50 million in equity in the Yangtze Special Opportunities Fund to pursue a multi-pronged strategy targeting pools of NPLs, distressed real estate assets and corporate restructuring opportunities in China.

"We would really like to do more in this area," said Karin.

IFC's investment in NPL will provide momentum to the process of NPL and distressed asset resolution by introducing international expertise for the asset class. Meanwhile, IFC will help to develop a stronger credit culture by creating the market for NPL assets, according to the country manager.

As to the securities sector, although right now foreign companies are technically not allowed to invest in securities companies, the country manager is optimistic there will be some flexibility.

"It is similar to the way we looked at the banking sector 10 years ago," said Karin.

The regulations have been changed to allow foreign companies to enter the banking sector. The securities market has not gone through a similar transformation yet. But the manager said there is room to really take advantage of the international expertise out there and to figure out ways to solve market problems, in a similar way to what happened in the banking sector.

IFC is looking to set up a pilot scheme which they can use as a model in terms of governance and standards for securities companies in China. It is also talking to the regulators and keeping in touch with a lot of different players to see when there might be the opportunity to invest.

"We can either invest with one or more public and competitive existing securities companies, or with a new company," said the manager.

Moreover, the manager said IFC is most likely to be the first foreign issuer of renminbi-denominated bonds.

Early this year, Chinese regulators gave the green light to international development bodies to issue renminbi-denominated bonds and now the regulators are working on details of bond issues by IFC, the Asian Development Bank, and the Japan Bank for International Co-operation.

Now, IFC is preparing its application package and China will be the 31st market in which IFC has issued local currency bonds.

The size and time period of the bonds depends on the market situation at the time of the issue, but a longer time period would be preferable as it could help build the domestic financial market, she said.

As one of IFC's fastest growing client countries, China is the corporation's ninth largest country portfolio. In the 2004 fiscal year, IFC committed US$391 million in 19 projects while the annual commitments in the last three years are about US$100 million. It makes China the largest country programme in the fiscal year 2004.

"As for this year, the commitment will be at about US$400 million again, but we are hoping to do a little bit more," Karin said.

In the last fiscal year about 20 per cent of IFC's investment was in the financial sector, some 30 per cent was in manufacturing, 15 per cent in infrastructure, 15 per cent in chemicals and 20 per cent in funds.

This year will see the shares of infrastructure and agro-business go up, while the share for the financial sector will stay the same as last year, according to the manager.

Close