November 11, 2013 6:32 AM
By Prudence Ho and Yvonne Lee
View of the Pudong financial district skyline from the historic Bund in Shanghai on October 29, 2013.
Agence France-Presse/Getty Images
At a time when bad debt is looming among China’s banks, one initial public offering that could stand to benefit is that of China Cinda Asset Management Co. Ltd.
The debt-clearing agency is planning to raise up to US$2 billion in its IPO in Hong Kong, which could shed light on the health of China’s banking system.
One pre-deal research report in fund managers’ inboxes comes from Cinda’s own brokerage, Cinda International Securities. Cinda International says that on average, between 2010 and 2012, Cinda made returns of over 110% in disposing of bad debt, making gains through cash, securitization or swapping loans for equity.
The company is planning to start taking orders for its IPO on Nov. 25. Three pre-deal research reports from underwriters BOC International, Goldman Sachs and JP Morgan Chase & Co ascribe it a fair value of between CNY97.3 billion and CNY131.2 billion (US$16 billion –US$21.5 billion)
Goldman says its valuation of up to HK$131 billion values the buyer of bad debts at 1.1-1.4 times the debt agency’s 2014 book.
Cinda is one of four asset-management firms China established to clean up the country’s banks before those lenders went public over the past decade. In recent years, Cinda has branched out into businesses like fund management, insurance and brokerage. But taking nonperforming loans from Chinese banks remains the bulk of Cinda’s business, accounting for 64% of 2012 profit before tax.
Goldman says it expects Cinda’s net profit to grow by 19% to CNY8.7 billion this year, with earnings set to rise 24% on average between 2013 and 2015.
“Cinda could play a key role in managing potentially substantial NPLs [non-performing loans] in China’s financial system,” Goldman said.
BOCI notes in its report: “In our opinion, the China distressed-asset market will grow rapidly in the next few years as economic growth slows and economic restructuring advances.”
The share of non-performing loans among total loans at Chinese banks remains low, at below 1%. But debt levels in the country are rising, following massive lending by banks since the financial crisis. The ratio of debt to gross domestic product in China has risen, from 120% in 2007 to 180% in 2012. Including loans issued by the country’s shadow banks, debt levels have tripled since 2007, according to Fitch Ratings.
-Fiona Law contributed to this article.
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Sovereign Wealth Funds and Institutional Investors Lock into Cinda’s IPO
November 24, 2013
Norges Bank Investment Management manages Norway’s massive pool of sovereign wealth. Pivoting toward China, they are joining a group of cornerstone investors committing to purchase US$ 1.1 billion in China Cinda Asset Management Co. as part of its Hong Kong initial public offering (IPO). These cornerstone investors would total 45% of the IPO. Typically, cornerstone investors get a guaranteed allocation but agree to hold the stakes for a set period.
Nearly two-thirds of Cinda’s profits arise from its bad debt restructuring business.
The Cinda IPO would be Hong Kong’s largest IPO of 2013 – as Cinda is aiming to raise a total of US$ 2.5 billion. Cinda hopes to dethrone Sinopec Engineering Group’s US$ 1.8 billion IPO in May 2013. on December 4th, Cinda is set to price the IPO. The range of the IPO is possibly around HK$ 3.00-3.58 per share.
Back then, shedding non-performing loans from the big four banks into asset management companies were authorized by the Chinese government.
Cornerstone Investor Table – China Cinda Asset Management Co.[Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]