Whilst many of our readers will no doubt have been distracted for the last several weeks following England's agonisingly close failure to win a second World Cup, here in KPMG China's Restructuring practice, we have seen demands for our services flooding in faster than German goals against Brazil (no more World Cup references, I promise!).
In our view, this is reflective of the policy reform agenda promulgated last November at the conclusion of the Third Plenary Session of the 18th Central Committee of the Communist Party of China. Since then we have seen a surge in bank disposals of NPL portfolio's on a scale not seen for a decade or more, as well as greater determination among banks and other stakeholders to drive resolution of bigger problem accounts. Chief among the latter category is the widely-reported case of Chaori Solar, which has achieved notoriety as China's first-ever purely domestic bond default. On 26 June 2014, the Shanghai No.1 Intermediate People's Court appointed KPMG and King & Wood Mallesons as joint Administrators under the Enterprise Bankruptcy Law. And with other recent cases such as Nanjing Tanker and STX Dalian entering bankruptcy proceedings maybe we are now seeing greater acceptance of formal processes as a sensible way to resolve troubled companies in China.
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The funding of China's urbanization
Urbanization of China
The scale of China's urbanization has been acknowledged by China's Premier Li Keqiang as unprecedented throughout human history. It will unleash enormous consumption and is expected tocost approximately RMB42 trillion over the next seven years. The methods China employs to finance urbanization in a potentially transformative era will be critically important for central government policymakers to ensure sustainable growth and economic stability. In this regard, we expect to significant growth in municipal bonds and sophisticated frameworks offering local government and private funds and incentive to cooperate and mitigate risks.
This article discusses challenges facing China's ambition urbanization and its funding approach.
New Hong Kong Companies Ordinance
On 3 March 2014, Hong Kong introduced a new Companies Ordinance. Unfortunately, there has been little or no change to the winding-up and insolvency related provisions, which have been retained in a retitled ordinance, Companies (Winding Up and Miscellaneous Provisions) Ordinance. That said, there have been a number of changes that impact theconduct of corporate reorganizations in Hong Kong. We have sought to highlight these changes in the attached summary, which sets out a comparison between the old and new provisions.
KPMG in the news
KPMG completed the financial restructuring of Ambow Education Holdings in May 2014. Ambow, the largest private tuition group in China, was placed into provisional liquidation in April 2013. Eddie Middleton, Tiffany Wong (Hong Kong) and Kris Beighton (Cayman Islands) were appointed Joint & Several Provisional Liquidators.
Shanghai Chaori Solar Energy (“Chaori Solar”)
KPMG has been appointed as the Administrator of Chaori Solar jointly with King & Wood Mallesons in June 2014 by the Shanghai No.1 Intermediate People's Court. Chaori Solar, a Shanghai listed alternative energy entity, was the first domestic bond default back in March. Chaori Solar reported losses in 2011, 2012 and 2013. As of 31 December 2013, it had total assets of approximately CNY 3.77 billion (USD605 million), debts of CNY 4.287 billion. As of 31 March 2014, it reported total assets of CNY 3.517 billion and debts of CNY 4.301 billion. Our partner Tiffany Wong is leading the KPMG team in Shanghai.
China Non Performing Loans (“NPLs”)
According to China Banking Regulatory Commission, by the end of March 2014, the level of NPL's within China's commercial banks rose from CNY592.1 billion at the end of December 2013 to CNY646.1 billion, an increase of CNY54 billion in just three months. The total of “special-mention” loan balances stood at CNY1.5553 trillion, representing 2.5% of the total loans within the system. The “special-mention” category refers to the case where the borrower is currently capable of servicing their debts but possesses some loans that have the possibility of default. Lead by Wilson Pang, KPMG has been engaged by a number of commercial banks to assist with the disposal of their NPLs portfolio over the coming 12 months, as well as advise on the turnaround of several special mention cases.
David White, Director of the Portfolio Solutions Group Asia Pacific, has relocated to Hong Kong from Bangkok. David has spent that last 12 months working in Ireland and the UK working on the disposal of several IBRC loan portfolios, as well a two significant shipping portfolios for a UK bank. David is currently investigating opportunities in Australia, India, Japan, Taiwan and Vietnam, as well as supporting the firm's China initiatives.
KPMG Restructuring Beijing team
Cherie Cao, Partner of Restructuring team, has rejoined KPMG in Beijing after leaving the firm in 2008. With a background initially in audit, Cherie has developed a wealth of transactions, valuation and restructuring experiences working in the State Owned Enterprise sector. Cherie is now leading the Restructuring team in Beijing with our newly recruited senior manager, Beatrice Xu, who joined us after 5 years with CICC. Vincent Lee, senior manager of the Hong Kong office, has also relocated to Beijing in June 2014.
We congratulate Sarah Bower on being nominated as one of the 10 Innovative Individual Lawyers in the Financial Times Asia Pacific Innovative Lawyers Report. Sarah leads our in-house counsel team within our restructuring practice, acting as a bridge between our team and external legal advisors.
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