BEIJING: Alibaba Group Holding Ltd is creating a new financial business on its online platforms – auctioning off non-performing loans for asset management companies.
The e-commerce giant has announced a strategic partnership with China Cinda Asset Management Co to help dispose of troubled assets.
Cinda, one of four State-owned managers of soured loans in China, will auction its 4 billion yuan ($645 million) of bad assets on Alibaba’s flagship online marketplace Taobao. The process is set to start on June 20.
“Alibaba’s cutting-edge technology, massive user base and vast collection of data will help offer great opportunities for the new asset management model,” said Zhang Jianfeng, the president of Taobao.
The partnership comes as China’s slower economic growth heightens concerns about bad debts especially in the banking sector, where nonperforming loans are rising at their fastest rate since 2004, data from the China Banking Regulatory Commission show.
New nonperforming loans in the first quarter reached 139.9 billion yuan, almost 56 percent of the total increase in NPLs last year, the regulator said.
In March, Cinda’s branch in Zhejiang province conducted a trial auction on Taobao, successfully selling almost 55 million yuan of troubled assets in four tranches.
Lu Weixin, who heads Taobao’s auction platform paimai.taobao.com, said all auctioning procedures will be conducted online except for due diligence.
“Participants will bid openly against each other. This will help lower management costs, improve transparency and boost the efficiency of tackling soured assets,” Lu said.
Wu Qing, deputy director of banking research at the Development Research Center of the State Council, said putting packages of nonperforming assets up for sale on e-commerce platforms like Taobao is a sound plan.
“Such an effort may reach out to a larger number of financial institutions, lower transaction costs and disclose more information of the asset packages to investors informally. The bidding process may also become more transparent,” Wu said.
It will not, however, change the basis for transactions of nonperforming assets, he said, because the majority of sellers will still be the banks and the buyers will also remain unchanged, adding only a small group of non-financial institutions have the experience and ability to deal with bad assets.
Analysts say online auctioning has become an important business for Alibaba.
In 2014, the value of goods auctioned on paimai.taobao.com surged 1,528 percent to more than 12 billion yuan. The service covers a range of items, including cars and apartments seized by courts as well as overseas islands.
In October Taobao also launched a platform dedicated to dealing with asset management, and by May, 34 institutions had signed up, 14 of which were banks.
Mu Hua, a banking analyst with GF Securities Co, said: “The key point is not how Cinda sells packages of bad assets, but its ability to sell them.
“What investors care most about is what have been Cinda’s actual annualized returns on bad assets historically and whether the company covered investor losses when defaults did occur.”
