Washington, DC, March 14, 2003—
The International Finance Corporation (IFC), the private sector arm of the World Bank Group, has agreed to provide equity and debt financing to support the sale of a nonperforming loans (NPL) portfolio in China. This first-of-its-kind transaction will encourage financial system reform by creating a model institution to deal with problem bank loans. The transaction creates the first onshore international and domestic joint venture vehicle for acquiring Chinese NPLs.
A Morgan Stanley-led consortium, which includes Lehman Brothers, Salomon Smith Barney, KTH Capital Management and Zhongjin Fengde, announced the final regulatory approval and closing of a joint venture with Huarong Asset Management Company. The joint venture purchased from Huarong a portfolio of NPLs totaling RMB10.8 billion ($1.3 billion). The transaction is the largest portfolio sale of NPL assets in China’s history.
IFC will provide loan financing for about 40 percent of the purchase price and take an equity stake of 3 percent in the special purpose vehicle that will hold the consortium’s interest in the joint-venture company.
“The resolution of NPLs is a priority in reforming and strengthening the Chinese banking sector as the high level of bad loans is a concern regarding economic progress and financial sector development,” said Karl Voltaire, Director of IFC’s Global Financial Markets Department. “This transaction will provide much needed momentum to the development of the Chinese NPL market and set standards for similar transactions,” said Javed Hamid, IFC Director for East Asia and Pacific.
Established in October 1999, China Huarong Asset Management Corporation is an independent legal entity and a wholly state-owned financial institution. It is also the largest asset management company among four similar corporations established by the government to address the NPL problem accumulated under a planned economy and to support the reform of China’s state owned enterprises. Huarong’s major tasks comprise purchase, management and disposition of the NPLs acquired, and its main objective is to maximize the recovery value while minimizing losses resulting from disposition.
Morgan Stanley is a global financial services firm and a market leader in securities, asset management and credit services. With more than 700 offices in 28 countries, Morgan Stanley connects people, ideas and capital to help clients achieve their financial aspirations
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The mission of IFC is to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses. Since its founding in 1956 through FY02, IFC has committed more than $34 billion of its own funds and arranged $21 billion in syndications for 2,825 companies in 140 developing countries. IFC's worldwide committed portfolio as of FY02 was $15.1 billion for its own account and $6.5 billion held for participants in loan syndications.
