KKR, BlackRock, funds in talks to buy stake in China Huarong: sources

Fri Jan 24, 2014 5:39am EST
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By Stephen Aldred and Denny Thomas

HONG KONG (Reuters) - KKR & Co (KKR.N: Quote) and BlackRock Inc (BLK.N: Quote) are among leading global investors in talks to buy a stake in China Huarong Asset Management Co Ltd as the bad debt manager seeks to raise more than $2 billion, people familiar with the matter told Reuters.

Other investors in the hunt include rival private equity firms Blackstone Group (BX.N: Quote) and Bain Capital, the people familiar with the matter said. Sovereign wealth funds from Asia and the Middle East are also in a group of 20 or so investors preparing to submit first-round offers by mid-February, they said.

Reuters previously reported that Huarong was planning to sell a stake of between 15-20 percent to strategic investors ahead of an eventual initial public offering. Overseeing total assets of 400.9 billion yuan ($66 billion), Huarong is the largest of China's four bad loan managers.

Huarong's planned stock offering will allow the company to raise money to expand its business - acquiring bad loans and forfeited assets from companies unable to repay their lenders. Huarong turns a profit by repackaging the loans and assets and selling them on.

As China's economy slows, a wave of loans is expected to turn sour. That will boost prospects for Huarong and the three other asset managers set up by the Chinese government in 1999 to remove an estimated 1.4 trillion yuan ($230 billion) worth of bad loans from the country's top four state lenders.

"NPLs (non-performing loans) will keep rising in absolute terms and relative to the loan base (in ratio terms) from less than 1 percent, which is low and unsustainable," said Grace Wu, a Daiwa Capital markets analyst.

"China has a large enough buffer to absorb a three-four times increase in NPLs. Some will argue that a lot of loans are rolled over in what is called 'evergreen loans' but that's the nature of lending in China," she added.

CINDA APPEAL   Continued...

A BlackRock building is seen in New York June 12, 2009. BlackRock has agreed to buy Barclays Global Investors to create the world's biggest asset manager, BlackRock Global Investors, in a $13.5 billion deal that British bank Barclays hopes will put to rest concerns about its capital. REUTERS/Eric Thayer