Chinese bad loan manager Cinda sits on its own debt mountain
By Elzio Barreto
HONG KONG (Reuters) - China Cinda Asset Management's drive to crank profit out of bad loans has come at a cost - a debt mountain of its own.
As it homes in on Hong Kong's biggest initial public offering this year, the distressed debt manager's borrowing has risen twenty-fold in the last three years to more than its maximum market value at listing.
The surge to 104.1 billion yuan ($17 billion) in debt at the end of June came as Cinda went on a spree, scooping up distressed assets from the likes of real estate projects, cement makers, miners and coal companies unable to pay back loans.
The debt pile, revealed for the first time in Cinda's IPO prospectus, doesn't just expose the company to risk factors including short- and long-term interest rate hikes. It means Cinda's reliance on backing from the government and Chinese financial institutions to fuel its growth is set to intensify, even as the sale of up to $2.5 billion in shares attracts some of the world's biggest global investors.
"In the end the question is what are the returns they're going to get on the assets that they're buying," said Charlene Chu, China bank analyst at Fitch Ratings in Beijing. "Will the returns be sufficient to pay back the obligations that they owe?"
The IPO has lured sovereign wealth funds and hedge funds betting that soured loans will be big business in China's slowing economy. Hong Kong market sources say demand for the shares, due to list on December 12, has been brisk since the prospectus was launched on Monday.
There's no suggestion that Cinda's major shareholder, China's Ministry of Finance, or other lenders won't continue to support the company or roll over borrowings if Cinda needs more time to pay back its own debt.
But Cinda said in its IPO prospectus that, "If sufficient financing is not available to meet our needs, or cannot be obtained on a commercially acceptable terms, or at all, we may not be able to fund our operations, investments and business expansion, introduce new business or compete effectively." Continued...