* Orient becomes first Chinese bad bank to issue dollar
* Move comes as holders of non-performing loans are
* Investors question foreign issuance amid rising debt in
By Nethelie Wong
HONG KONG, Sept 13 (IFR) - China Orient Asset Management
Corp on Thursday priced a US$600m five-year bond, becoming the
first of China's so-called bad banks to issue US dollar debt.
Orient, one of the four asset-management companies created
in 1999 to remove non-performing assets from the balance sheets
of China's largest banks, follows a similar foray from Cinda
Asset Management Corp, which issued a Rmb2bn (US$326m)
three-year offshore bond last December.
Cinda also filed an application for a Hong Kong IPO of about
US$2bn last month as it looks to sell shares to international
The fundraising moves come as the asset managers are
expanding their commercial operations and shifting their focus
away from their earlier policy role.
Cinda has started an offshore business with a focus on
helping Chinese enterprises to list in Hong Kong. Orient is
expected to keep the money offshore to help build its overseas
Orient also acquired China United Insurance in November
2012, giving it a foothold into another part of the financial
The commercialisation of the bad banks, however, has raised
eyebrows among foreign investors, coming amid fears that bad
debts are again building up in the Chinese financial system.
"From the standpoint that these are managers of
non-performing loans, it begs the question: is it safe?" said a
fixed-income specialist at a real money fund.
NOT FOR BAD LOANS
Orient's prospectus showed that the funds raised would go
towards its commercial operations, which have been separated
from its remaining policy functions by an internal
Questions remain, however, over the role of Orient and the
other asset management companies should China need to embark on
another clean-up of non-performing loans.
Morgan Stanley analysts warned in late August that total
debt in China had reached 221% of GDP, having jumped 75
percentage points in the past five years.
To mitigate some of the concerns, Orient, rated A-/BBB+,
included a change of control put if the central government
ceases to own 100% of the company.
That, for the portfolio manager, made it "a very cheap
Indeed, Bank of China's dollar bonds due 2017 were trading
at 212bp over Treasuries, or a curve-adjusted spread of about
237bp. Orient, sold at 325bp, offered almost 100bp more.
Still, early trading showed some lingering concerns. The
bonds sold off in their first hours of trading today, quoted as
wide as 335bp on the break.
The four asset management companies were established in 1999
to dispose of non-performing assets from the four largest
state-owned banks after five decades of policy-driven lending to
prop up growth.
Orient acquired Rmb277.3bn (US$45.3bn) of non-performing
assets from Bank of China at book value in 1999, and further
accepted entrustment of Rmb142.4bn of the bank's non-performing
The People's Bank of China, the country's central bank,
funded the acquisitions with a loan of Rmb116.2bn at an interest
rate of 2.25% per annum and. Orient also issued bonds of
Rmb160bn at 2.25% per annum. The bonds had a tenor of 10 years
and were extended for a further 10 years at the same coupon rate
As of 31 December 2012, Orient had disposed of Rmb228.3bn of
non-performing assets from its policy-oriented operations and
recovered Rm50bn in cash, achieving a cash recovery ratio of
The government is expected to eventually make-up for the
difference. Unless foreign investors or profits from the
company's new operations do it instead.