China Cuts Red Tape to Ease Debt Purchases by Foreigners

China will streamline approval procedures for the sale of non-performing loans (NPL) to international investors, according to the president of one of the four state-owned asset management companies.

Instead of seeking permission from various government agencies, the asset managers will have to register the deals only with the State Administration of Foreign Exchange (SAFE), said Zhu Dengshan, who is also chief executive of China Cinda Asset Management.

The new policy, drawn up by the National Development and Reform Commission (NDRC), could be unveiled as early as next month, Mr Zhu said in Hong Kong yesterday.

“It will simplify approval procedures. It will provide a favourable environment for the [managers'] accelerated NPL disposal,” he said, adding that the transactions would have to be reported to the commission within 20 days of completion.

Once the requirement for case-by-case approval is eliminated, asset managers can apply for an annual foreign quota to transfer NPLs to foreign buyers. The quota could be modified once a year.

Established in 1999, the four asset managers – Cinda, China Huarong Asset Management, Great Wall Asset Management and China Orient Asset Management – are responsible for disposing of more than 1.7 trillion yuan ($205 billion) of NPLs offloaded by the largest state-owned banks.

Most foreign investors have so far opted to set up joint ventures with Chinese partners to own or collect debts. For that, they have had to seek the blessing of several government bodies, including the Ministry of Finance, State Administration for Industry & Commerce, China Banking Regulatory Commission, NDRC and SAFE – a process that can take many months.

“The approval process has been slowing everyone down,” said Ian Johnson, a partner at international law firm Allen & Overy.

“Anything that simplifies approval procedures is most welcome,” added John Langlois, the chairman of Morgan Stanley Property China.

However, a western executive said an even more important issue was whether asset managers would be free to set sale prices. Currently, the reserve – or lowest acceptable – NPL prices for foreign investors must be approved by the state.

Mr Zhu’s announcement yesterday came amid rumours that local branches of the asset managers had been given greater freedom to sell small pools of NPLs without head-office approval.

Both developments appear to be a response to a fresh end-2006 deadline the government gave the managers earlier this year to dispose of the original 1.39 trillion yuan ($168 billion) in NPLs they acquired in 1999. By last month they had disposed of about 61 per cent of them.

Foreign investors buoyed by their success in Asian countries have been disappointed by the thin flow of assets made available in China and the hugely divergent pricing expectations of mainland sellers.

Only one large international auction has been completed this year – China Construction Bank’s sale of 4.07 billion yuan ($492 million) of settled assets to Morgan Stanley and Deutsche Bank in May.

Negotiations are ongoing for Cinda’s international sale of 10 billion yuan of NPLs in the northeast rust belt provinces.

Separately, Mr Zhu said the finance ministry was also likely to introduce guidelines on the pricing of the sales of equity converted from the NPLs of debtor companies.