* Cinda's shares surge as much as 34 pct on retail demand
* Bodes well for peer Huarong, which also seeking to list
* Cinda raised $2.5 bln; sources see greenshoe exercised
(Adds details on Huarong, industry outlook and market comment)
By Elzio Barreto
HONG KONG, Dec 12 Shares in China Cinda Asset
Management Co Ltd surged as much as a third in their
trading debut on Thursday, marking a major success for China's
first listing of a bad debt management firm and boding well for
other potential IPOs in the sector.
Brightening up an otherwise dim IPO market for Hong Kong
this year, Cinda has raised $2.5 billion - an amount set to grow
to nearly $2.9 billion, with sources familiar with the matter
saying the stellar demand virtually guaranteed the exercising of
an overallotment option.
Keen to bet that soured loans will be a growth industry in
China as the economy slows, 10 cornerstone investors put in a
combined $1.1 billion in the IPO, including Oaktree Capital
Management Ltd, the world's largest distressed debt
investor, and Och-Ziff Capital Management Group LLC.
While Cinda has its critics, some of whom worry about the
opaqueness of its bad loan pricing, the presence of such global
marquee investors boosted sentiment. The retail portion
generated more than 161 times demand than the shares on offer,
resulting in that allocation being lifted to 20 percent from 5
One of four asset management companies that Beijing
established in 1999 to absorb toxic assets held by China's four
biggest banks, Cinda, which took on the debts of China
Construction Bank, is the most profitable.
Peer Huarong Asset Management Corp is next in line to go
public and is currently seeking to raise up to $2 billion from
pre-IPO investors, ahead of a listing next year, sources have
Bad loans at Chinese banks could rise by between 70 billion
yuan ($11.5 billion) and 100 billion yuan in 2013 partly due to
delinquency risks from industries plagued by overcapacity,
according to an annual report by the China Banking Association.
Cinda shares soared as high as HK$4.79, but later pared
gains to change hands at HK$4.56 in afternoon trade, up 27
percent from its IPO price of HK$3.58 and valuing the company at
around $21 billion.
"I am selling Cinda into the rally and taking some profit,"
said Alex Wong, Ample Finance's director of asset management.
The offering was the largest in Asia-Pacific excluding Japan
since the $3.6 billion listing by People's Insurance Group of
China Co Ltd (PICC) in November 2012.
The shares had jumped more than 17 percent in gray market
trading on Wednesday, which pointed to a strong start, but
Thursday's debut surpassed even the most bullish of estimates
PROFITS AND DEBTS
Cinda said in its IPO prospectus that profit attributable to
equity holders jumped 36 percent in the six months to June to
4.06 billion yuan ($666 million) from a year earlier.
Thursday's jump would raise Cinda's price to book ratio to
1.66 times for 2013, while Hong Kong-listed banks trade at a P/B
of 1.2 times, according to Thomson Reuters data.
But the debt manager's borrowing has also risen twenty-fold
in the last three years to 161 billion yuan ($26.5 billion) as
of end-October as Cinda scooped up distressed assets from the
likes of real estate projects, cement makers, miners and coal
"When we manage bad loans we adopt a cautious attitude,"
Cinda Chairman Hou Jian Hang said at a news conference in Hong
Kong, seeking to ease concerns about the debt pile. "We make
provisions according to the business needs."
The borrowings expose the company to risk factors including
short- and long-term interest rate hikes and also underline how
dependent Cinda would be on the Finance Ministry, its biggest
shareholder, and other lenders to rollover its borrowings should
it need more time to pay back debt.
"In the long run we do have some reservations on the
business model," said Tony Chu, a portfolio manager at RS
Investments. "It's quite interesting. There's opportunity and
($1 = 7.7535 Hong Kong dollars)
($1 = 6.0717 Chinese yuan)
(Additional reporting by Denny Thomas, Clement Tan, Nishant
Kumar, Venus Wu and Stefanie McIntyre; Editing by Edwina Gibbs)