Unit of Hong Kong property firm seeks to manage distressed Chinese debt

[HONG KONG] NWS Holdings, a unit of one of Hong Kong's biggest property developers New World Development, has applied for a licence to manage distressed loans in China, according to people familiar with the matter.

NWS has submitted the application to the China Banking and Insurance Regulatory Commission for a permit in southern Hainan province, said the people, who asked not to be identified as the matter is private. If approved, the Hong Kong-based company could become the first firm not from mainland China to have direct access to China's 2.60 trillion yuan (S$509.67 billion) bad loan market, one of the people said.

China's banking industry is sitting on a record amount of soured loans as the Covid-19 pandemic hammered the world's second-largest economy and grounded millions of small businesses. S&P Global Ratings estimated last month that China's non-performing asset ratio, a more stringent measure of troubled advances than the official calculation, could almost double to 10 per cent from pre-outbreak levels this year. That's a projected increase of 8 trillion yuan.

It is unclear whether NWS will tie up with other companies for a joint bid, and the application is subject to change, said the people. NWS and the CBIRC didn't immediately respond to requests for comment.

China has set up dozens of smaller bad-debt managers in recent years with a mandate to deal with regional distressed debt. Unlike other foreign investors which can only buy bad loans via asset managers, the licence will enable NWS to purchase the debt directly from banks, and to borrow funds at relatively low rates in Hainan.

Chinese leaders last week announced plans to build up a trading hub on Hainan, which is known more for its beaches and tourism than as a centre for financial services. It lies just south-west of the so-called Greater Bay Area that includes Hong Kong, the semi-autonomous territory of Macau and the mainland city of Guangzhou.

BLOOMBERG