BEIJING: Bad loans are rapidly becoming the latest hot commodity in China as more domestic and foreign investors rush into the market and bid up prices. Non-performing loan prices have risen more than 30 percent this year, according to distressed investor Belos Capital Asia Ltd. The average selling price of NPLs has climbed to around 50 cents on the dollar in the past two years, from 30 cents, said Victor Jong, a partner in the deals and business recovery services unit of PricewaterhouseCoopers LLP in Shanghai. Such a high level is “very rare” in international markets, Jong said. “There are just too many buyers grabbing a limited supply of NPLs,” said Hanson Wong, CEO of Belos Capital in Hong Kong. “At these prices, it’s pretty hard for these NPLs to be profitable.” Distressed investors are increasing as Chinese authorities encourage market-oriented ways to resolve lenders’ mounting piles of non-performing debt amid slowing economic growth. A jump in valuations of real estate, which often act as underlying assets for secured loans, has boosted the debt’s recovery prospects. Combined with a surge in money supply, this has lifted bad-loan prices even in some less-developed regions of China, according to domestic distressed debt investor Bald Eagle Asset Management.
Foreign investors including Oaktree Capital Group LLC, Lone Star Funds, Goldman Sachs Group Inc. and PAG have bought China NPLs in the current cycle that began in 2014, according to a March report from PwC. Non-performing loans at the country’s lenders jumped 61 percent in the past two years to 1.58 trillion yuan ($231 billion) at the end of March. In the previous NPL cleanup in China, between 2001 and 2008, secured debt was typically sold at 20 cents on the dollar, and unsecured creditors got back only 5 cents, said Wang Yingyi, a partner at Bald Eagle in Beijing.
