7 to 551 table 11 12 following such scenario morgan

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Unformatted text preview: e uncollateralized NPLs half and half to the credit and guaranteed loan, we get recovery rate ranging from 33.7% to 55.1% (Table 11, 12). Following such scenario, Morgan Stanley's expected return from this deal will range from 20% to 40% (Table 10 and Chart 4). Second, the personnel at Morgan Stanley are more motivated and experienced in loan workout. The KTH Capital Management, one of the partners of the consortium, is in charge of loan workout. Mr. Wang, the head of KTH, is an experienced NPL workout expert. Dr. Li, a Managing Director of KTH, said in an interview: "We put in our own capital, so we have to do it right." Chart 5: Asset & Cash Recovery Rate 70.00% 60.00% 50.00%/40.00 3S Asset Recovery Rate 6% 30.00% - Cash Recovery Rate 20.00%10.00% 0.00% l Credit Collateralized Guaranteed Source: Huarong Analysis of Asset Resolution & Case Studies Table 11: Cash Recovery Rate Forecast Asset Recovery Credit Collateralized Guaranteed Recovery Rate 27.6% 36.5% 35.9% 30% 25% 20% 40% 50% 60% 30% 25% 20% 33.7% 34.1% 34.6% Weighted Ave. Scenario 1 Scenario 2 Scenario 3 Weighted Ave. Table 12: Asset Recovery Rate Forecast Asset Recovery Credit Collateralized Guaranteed Recovery Rate 36.5% 66.1% 40.8% 30% 25% 20% 40% 50% 60% 30% 25% 20% Scenario 1 Scenario 2 Scenario 3 49.6% 52.4% 55.1% Despite the uncertainty in the actual return of the NPL portfolio investment in China, more foreign investors have followed Morgan Stanley's lead in similar investments. In December 2001, a Goldman Sachs sponsored investment fund agreed to purchase from Huarong a NPL portfolio with a total face value of approximately RMB 2 billion. Morgan Stanley has negotiated to purchase another NPL portfolio from Cinda. Individual Asset Auction Auction is another major NPL disposal approach, especially for individual real estate properties and other assets such as vehicles and equipments. These properties are collaterals for loans or recovered assets from the loan workout. During a ten-day auction in May 2002, Cinda offered 304 individual items with a total book value of RMB 2.4 billion to the public investors. 160 items with a face value of RMB 1 billion were actually sold for RMB 400 million37 . Started from 3 Wall Street Journal, May 28, 2002 July 2002, Huarong also invited bids for its distressed real estate assets located in Beijing, Shanghai, Shenzheng, Chengdu and Baotou. Auction could be an effective way to dispose of distressed assets because it fully utilizes the supply and demand relationship and creates competition among buyers. The sale price could mostly reflect the market value of the property. But if there is an oversupply of the distressed assets in the market with limited investors, the price could be devastating. The AMCs have realized this problem and are trying to control the flow of the properties to the market in order to maximize the recovery rate. The buyers, however, could still deflate significantly the real value of assets currently offered in the market because they antic...
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