Survey reflects interests over NPL investment
By Zhao Renfeng (China Daily)
Updated: 2004-12-21 09:17

Foreign investors are eager to make multiple and sizable investments in China's NPL (non-performing loan) market, but frown on the lack of opportunities offered by China's sellers, according to a PricewaterhouseCoopers survey report released yesterday.

"Since December, 2001, only approximately US$6 billion of NPLs have been sold to foreign investors, a scant fraction of the market's total of approximately US$500 billion," Michael Harris, PricewaterhouseCoopers advisory services partner, said in a group interview. Harris spearheaded the recent survey.

According to the survey, 78 per cent of the respondents are prepared to each invest between US$51 million to US$250 million over the next one to three years.

All the survey respondents indicated that China's NPL market is a high priority with respect to their Asian distressed investments. Among them, 35 per cent reported China's NPL market is their top priority, according to the report.

"Foreign investors are interested in China's NPL market for many reasons, - chief among them, its abundant supply," said Harris.

"But China's NPL sellers are actually in danger of losing this investor interest due to the few opportunities offered to foreigners, the slow pace of disposals, and a lengthy approval process," Harris said.

According to the report, among the top concerns that could keep foreigners out of the Chinese market is the unclear government approval process.

Survey respondents said obtaining the various approvals required to close an NPL transaction in China is complicated and difficult.

Sellers continually re-negotiating sales terms is another key concern, according the report. "China's NPL sellers are extremely cautious about pricing. Frequent changes in pricing are not uncommon, even after they have previously been 'agreed,'" said the report.

Largely due to the cumbersome and lengthy approval process, and often heated discussions over prices, the timeframe is sometimes too long to complete a transaction, the report said.

PricewaterhouseCoopers partners said over the course of their numerous discussions with prospective investors in China's NPL market, the inadequacies of the legal system are nearly always raised as an area of concern. "While in our experience optimal recoveries are through consensual negotiations, there will always be some cases that will require legal action. Decent laws and procedures are in place enabling creditors to foreclose on real property," Harris said.

"But existing bankruptcy laws are rarely relied upon. A new draft bankruptcy law is expected to be introduced in 2005 that seeks to accommodate the many entities operating in China's new market economy, and this may help reduce investors' concerns."

Based on the survey result, Harris estimated that foreign investors have between US$10-15 billion earmarked for investment in China's NPL market, and this amount of money "could take a significant, but not overwhelming, bite out of China's NPL problem."

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