December 15, 2015 / 10:59 AM / 2 years ago

China's Huarong plans $8 billion bad loan sale, biggest in five years

SHANGHAI (Reuters) - China Huarong Asset Management, one of the country’s four largest buyers and sellers of soured loans, on Tuesday offered nearly $8 billion in bad debt to investors, its largest such sale since 2010

As China’s economy registers its slowest growth in a quarter-century, non-performing loans among the country’s commercial banks may rise to 2 percent of outstanding loans next year according to a report by a Bank of China institute, from 1.59 percent as of end-September, as borrowers struggle to repay their debt.

In a statement sent to Reuters, Huarong said it was launching the sale of 51.5 billion yuan ($7.97 billion) of non-performing loans on Tuesday, together with China’s popular online shopping website Taobao, a platform owned by e-commerce giant Alibaba Group Holding Ltd.

Officials at both Taobao and Alibaba were not immediately available for comment.

According to the Huarong statement, the loans are distributed across 24 provinces and cities, with more than half originating from Zhejiang, Jiangsu and Guangdong. China’s manufacturing sector is heavily concentrated in Zhejiang and Jiangsu, and the country’s largest banks have reported seeing higher levels of soured debt from these areas.

Debtors are diverse, the statement said, including firms from the wholesale, retail, textiles, pharmaceuticals, chemicals and machinery sectors. The total value of collateral is 50 billion yuan, covering 97 percent of the bad debt, Huarong said.

The assets will be available for sale for 90 days on an online Taobao platform, and those that attract high demand will be sold in an open auction process.

In November, China’s commercial banks posted an average non-performing loan ratio of 1.59 percent as of the end of September, the highest since the 2009 global financial crisis.

As the market for soured debt grows, a range of players are buying up the loans, including local asset managers, trust companies, foreign investors and even ex-regulators.

In May, Cinda Asset Management offered nearly $7 billion in soured loans to investors, its largest-ever such sale.

Reporting by Engen Tham; Editing by Kenneth Maxwell

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