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Beijing rmb 30 million rmb 1374 million rmb 0 million

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Unformatted text preview: on RMB 17.08 million Light Industry SOE RMB 13 million RMB 13 million 76% 76% Sued debtor's defaulted borrowers and got payment to pay back debtor's loan. Beijing RMB 30 million RMB 137.4 million RMB 0 million RMB 30 million Manufacturing SOE RMB 36.87 million RMB 6 million 122% 20% Waived accrued interest and got back principal. Jinan RMB 30.9 million RMB 0 million RMB 30.9 million Pharmaceutical JV RMB 25 million RMB 15 million 80% 48% Disposed of debtor's assets and used proceeds to pay back loan. The process, however, has been slow, with only 6.5% of NPLs foreclosed by the end of 2000 (Table 8). The NPLs disposition speeded up in 2001, with a total of 9.1% of assets disposed of in the year. The average recovery rate of disposal for all four AMCs in 2001 was around 29%, which is in line with the AMCs' earlier estimate (Table 8). It is worth noting that the nature of NPL workouts is such that the initial stages of the process are usually easier and become progressively more difficult because the best assets have been disposed of first and the more troubled remain in the portfolio. An interesting finding in 2001 is that the AMCs' asset recovery rates were in reverse relationship to their disposing speed. For example, Huarong had the highest asset recovery rate of 53.9% but only disposed of 5.7% of total distressed assets. While Great Wall disposed of its asset at the fastest speed, 15.4% of the total, but it had the lowest asset recovery rate of 11.9%. It appears that Cinda achieved the best balance between the speed and the recovery rate because both its speed and recovery rate were around the average of the four AMCs (Table 9). Table 8: Proportion of Acquired Assets Sold by Four AMCs by 2000 RMB billion Amount of Amount of Proportion Recovery Rate NPL Acquired Disposed Disposed % of Disposal % Huarong 407.7 7.9 1.9 42 Orient 267.4 18.8 7.0 NA Great Wall 345.8 24.8 7.2 NA Cinda 350.0 38 10.9 33 Total 1,370.9 89.5 6.5 NA Source: Deutsche Bank Research Estimates Table 9: Proportion of Acquired Assets Sold by Four AMCs in 2001 RMBbn Amount of Amount of Proportion NPL Disposed Disposed % Acquired Huarong 407.7 23.2 5.7 Orient 267.4 18.2 6.8 Great Wall 345.8 53.1 15.4 Cinda 350.0 29.9 8.5 Total 1,370.9 124.4 9.1 Source: International Financial Report 2001-2002 Recovery Rate of Disposal % 53.9 46.5 11.9 28.0 28.7 Cash Recovery Rate % 32.5 24.2 7.0 35.1 21.0 Loan Pool Sale In November 2001, Huarong held its first NPL portfolio auction in Beijing. The World Bank's International Finance Corporation (IFC) pledged to provide a financing package of up to US$ 50 million but no more than 40% of the total project cost to the winning bidder to purchase the NPL portfolio. An international consortium led by Morgan Stanley purchased four out of five pools of assets offered for sale, with a total outstanding principal balance of RMB 10.8 billion. The portfolio comprised loans to 254 borrowers from 18 cities and provinces throughout China. This was the first NPL portfolio sale from a Chinese AMC to foreign investors. Figure 1: Deal Structure AL Buyout at 10% Face...
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