China’s big four asset management companies are beefing up their working capital in anticipation of expanded purchases of non-perforing loans.
China Orient Asset Management has just indicated that it plans to buy 100 billion yuan (approx. USD$15.93 billion) in NPL in 2018, after raising more than 18 billion yuan from four strategic investors including China Telecom Corp, Shanghai Electric Group, National Council for Social Security Fund and China Reform Capital Corp.
At a routine press conference held on 19 April China Orient chairman Chen Xiongjian said that the company would strengthen its capital base in future, and commit more of its new capital to non-performing asset operations.
Jiang Yueming (江月明), general manager of the board office of China Orient, said that the latest round of fund-raising had exceeded expectations and taken the asset manager’s capital adequacy ratio to 14.3%, which is well head of the 12.5% required by Chinese regulators.
China’s financial regulators issued new requirements with respect to the capital adequacy ratios of its asset management companies at the end of last year, including a core tier-1 capital adequacy ratio of 9%, a tier-1 capital adequacy ratio of 10% and a capital adequacy ratio of 12.5% respectively for group parent companies.
As of the end of last year, the capital adequacy ratios of the other big four asset management companies – China Huarong, China Cinda Asset Management and Great Wall Asset Management Company were 13.06%, 16.77% and 12.55% respectively.
Chen Xiongjian said that capital adequacy ratios are the “bottleneck” for the growth of financial institutions, and that capital supplementation is an issue of perennial concern given that scale expansions necessitate timely injections.
According to Chen China Orient also plans to raise funds via bond issuance in the near-future.
China Orient isn’t the only big four asset management company to raise funds in preparation for future market expansion.
In 2017 China Huarong issued 10 billion yuan in subordinated debt, while China Cinda has already raised a total of 26 billion yuan via bond issuance this year.
Shen Xiaoming, the chair of Great Wall Asset Management, has also unveiled plans for “bringing on strategic investors, public listing [and] internationalised development.”
China’s big four asset management companies are coming under increasing pressure, with a sharp rise in the number of local asset management companies last year, prompting a spike in non-performing asset prices.
Members of the asset management sector believe that prices are unlikely to rise significantly in 2018, and will instead hold steady or even post declines.
Liu Bo (刘波), a senior executive with China Orient, said to Xinhua that the supply of NPL’s from banks is unlikely to decline in the near-term, and that the balance could even see a slight rise.
Liu also expects non-performing asset prices to be keep within a rational range by the recent exhaustion of the purchasing capability of local asset management companies, whose are also constrained by capital, personnel and liquidity factors.