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Foreign investors search for licences and profit as China NPLs rise

China is opening its market for distressed bank debt to specialist foreign investors, with LA-based Oaktree the first to set down roots. The market is big and growing, and for the first time, regulators and foreign funds need each other just as much.


China has opened the door wider to foreign funds keen to invest in its fast-growing market for distressed bank debt, allowing them to apply for licences for the first time to operate as provincial-level asset management companies (AMCs).

The trigger was a decision to include the specialist financial service in Phase 1 of the US-China trade deal, signed in February.

US financial services firms, it said, will be allowed to ‘acquire non-performing loans (NPLs) directly from Chinese banks’, and will be treated on an equal basis with local AMCs when regulators issue new licences.

Land of promise

Foreign investors have long coveted greater access to China’s enormous market for soured bank debt.

In 1999, Beijing created Cinda, Huarong, Orient and Great Wall, and ordered that quartet of AMCs to purchase, manage and dispose of NPLs held by its big state banks.

Many tipped the market to flourish and to embrace specialist investors such as Los Angeles based Oaktree Capital Management. For a while, that looked set to happen. Morgan Stanley and Goldman Sachs took part in open auctions of bundles of bad bank debt.

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