Plans drawn up for asset firm reshuffle
By Feng Jie (China Daily)
Updated: 2005-06-21 08:47

China's four State-owned asset management companies (AMCs) are to be restructured into joint-stock commercial ventures once bad loan clearing tasks are completed at the end of next year.

The Ministry of Finance, currently the sole owner of the four AMCs, is soliciting opinions from the firms about a draft reform plan, which requires the AMCs to undergo joint-stock restructuring and welcome strategic investors from both home and abroad.

"All four asset management companies are working on their restructuring plans, and many big international investment banks are keeping close contact with them for possible co-operation not only in the disposal of non-performing loans, but in the restructuring," an official from one of the AMCs, who declined to be named, said yesterday.

The four State-owned AMCs - China Huarong, China Cinda, China Orient and China Great Wall - were set up in 1999 and took over a total of 1.4 trillion yuan (US$168 billion) in non-performing loans (NPLs) from the four State-owned commercial banks.

The establishment of the AMCs was a major step by the government as it reforms the NPL-ridden banking sector, and followed a 270 billion yuan (US$33 billion) capital injection into the banks.

The AMCs were initially given 10 years to recover the bad assets. But half of the job has been completed inside four years.

A scheme introduced by the State Council early last year dispersed worries about previous performance, as the AMCs were given more room to manoeuvre. Having completed their policy tasks, AMCs are permitted to engage in commercialized NPL management to make full use of their expertise accumulated over the years.

They are allowed to use their own capital to make additional investments in parts of distressed assets obtained during policy transfer to maximize cash recovery.

AMCs may also purchase non-performing assets on a commercial basis, which is considered a huge market as domestic banks have become increasingly eager to clear the decks in preparation for initial public offerings.

While AMCs cannot sever all ties with the NPLs they took over in 1999 even if they manage to achieve disposal by the end of next year as the finance ministry requires, they are likely to establish a group company to handle legacy affairs and to set up a new joint-stock entity to operate new business.

But some analysts are not so sure of the path the AMCs are taking. "Theoretically it's a good move," said Wang Songqi, a senior economist at the Institute of Banking and Finance under the Chinese Academy of Social Sciences, noting that a joint-stock structure will help improve governance and bring in foreign expertise.

"But a lot of it has to do with the sustainability of their business, and whether they are competitive enough to keep getting new deals," he said.

After the policy-oriented transfer of bad assets in 1999, the AMCs were also given the task of disposing of NPLs peeled off subsequently from State-owned banks readying themselves for IPOs.

Wang called into question the idea behind establishing the AMCs, insisting it is too expensive for the State to operate these special bodies to handle the resolution of NPLs, which he said could be done by third-party agencies. He also believes their efficiency is lower than expected.

Each AMC was set up with 10 billion yuan (US$1.2 billion) in registered government capital.

The AMCs had disposed of 688.6 billion yuan (US$83 billion) of NPLs by the end of March, recovering cash equivalent to a little more than 20 per cent of their face value, which Wang said underperformed other emerging markets.

Regulators are aware of the problems AMCs have faced. State auditors found irregularities in disposal work last year, so the China Banking Regulatory Commission started an inspection in April into the handling of bad loans transferred last year from the Bank of China and China Construction Bank.

Close