In my introductory notes to our July Newsletter I commented on the rapidly changing environment in China, particularly the emphasis now evident in the banking sector on tackling big problem accounts in addition to the continuing disposals of NPL portfolios. The months since July have seen a continuation of these themes.
CBRC-released figures for Q3 disclosed total banking sector NPLs of CNY766.9 billion; at CNY72.5 billion, the quarter-on-quarter increase was the biggest such increase in almost 10 years and the NPL ratio now stands at 1.16%. Part of the governmental response to this is to increase the number of AMCs authorized to acquire bank NPL portfolios and the CBRC’s disclosure of the latest NPL figures was very quickly followed by the announcement of the establishment of five more approved AMCs, in Beijing, Tianjin, Chongqing, Fujian and Liaoning. That brings to ten the number of such local provincial AMCs, in addition to the long-established “Big 4” national AMCs. For the present, though, a combination of regulatory limitations and commercial considerations is preventing these portfolios from finding their way into the private sector, although we do see meaningful competitive tension among the AMCs in the bidding process.
As for the big, “single credit” accounts, one trend that we are now seeing is the coming together of bank groups to work through problem accounts and, in addition, a growing recognition that professional advisers have a valuable contribution to make in resolving these problems. These bank groups can also be quite large; in one case that we are involved in, there are 32 banks involved, another has 19. It will not come as a surprise that over-capacity in the steel industry is now being reflected in a growing number of restructurings in the sector.
Illustrating all of the above in this Newsletter are articles on the outcome of the Shanghai Chaori restructuring, and on the state of China’s banking sector. I hope you find something of interest in them. Feedback, as ever, is welcome.
Lastly, may I take this opportunity to wish you, your colleagues and families a very happy Christmas and a prosperous new year.
Shanghai Chaori: The Restructuring of China’s First Domestic Bond Default
On 23 October 2014, the creditors of Shanghai Chaori Solar approved the restructuring proposal for the group, only four months after the acceptance of the reorganization proceedings by the First Intermediate Court of Shanghai. This is not the end, but a significant milestone in the restructuring.
In this article we discuss the restructuring plan, the challenges faced in the restructuring and the next steps to be taken. Should you have any comments or related queries in relation to the article, please do not hesitate to contact Eddie Middleton or Tiffany Wong, the co-authors.
China Banking Sector
This update reports on the financial position and business performance of China’s listed banks up to Q3 2014. It highlights hot issues including updated NPL ratios, finance development, e-money and liquidity management.
MNCs in China: Making the Right Moves
Excess capacity across many sectors and a slowdown in the growth of China’s economy is impacting the operations of MNCs in China. This report looks at the challenges they are facing, the strategic decisions that they are taking and outlines the longer term opportunities that exist in establishing operations that focus on the domestic market.
KPMG in the news
Landmark Insolvency Appointments in ASPAC
Patrick Cowley, Galaxy Chan and Fergal Power were appointed by the Court as provisional liquidators of the Hong Kong operations of OW Bunker, the world’s largest supplier of marine fuel.
Bob Yap, Peter Chay and Roger Tay of KPMG in Singapore were appointed as provisional liquidators of the two subsidiaries in Singapore – Dynamic Oil Trading Singapore and OW Bunker Far East Singapore.
OW Bunker, the world’s largest supplier of marine fuel, hit the headlines a few weeks ago when it collapsed into insolvency following the discovery of an alleged fraud in its Singapore unit. Denmark’s third-largest company, OW Bunker listed in Copenhagen only in March this year so its rapid collapse with US$ 700 million of bank debt and equity of US$ 1 billion has shocked markets.
Growing Restructuring Team
During this calendar year, the size of our restructuring team has almost doubled in response to the high demand of work in China. We now have almost 100 professional staff within our team in China.
In addition to the Beijing team, which we discussed in our last newsletter, we have new developments in our Shanghai team. Tiffany Wong, partner, has been appointed Head of the Shanghai Restructuring team, and is joined by Stan He, an experienced director. The Shanghai Chaori engagement was executed by a team led by Tiffany and Stan. There are now seven professionals within the team.
China NPL / Distressed Situations Trend
We continue to assist a number of Chinese and commercial banks to disposal of their NPL portfolios, we have to-date disposed of in excess of CNY40 billion of NPL portfolios in 2014. Steel, shipbuilding, manufacturing, wholesale and retail were the key sectors within these portfolios.