HONG KONG, Nov 24: A group of 10 investors, including Norway’s sovereign wealth fund and Och-Ziff Capital Management Group LLC, have together committed to buy about $1.1 billion into China Cinda Asset Management Corp as part of its Hong Kong IPO, people familiar with the matter said on Sunday.
Cinda, one of China’s four bad debt managers, is seeking to raise $2.5 billion through the Hong Kong IPO and the offer has attracted interest from distressed debt investors, hedge funds to China’s insurance giants. Together, the so-called cornerstone investors would buy about 45 percent of the initial public offering (IPO), which is set to be Hong Kong’s biggest this year.
Norges Bank Investment Management, the world’s biggest sovereign wealth fund, has pledged about $150 million to the IPO, making its biggest ever cornerstone commitment, one person familiar with the matter told Reuters.
Norges Bank’s pledge underscores the support from a long-term investor for the IPO that has polarized the Asian investment community, the person added.
The IPO, which is set to be launched on Monday, has generated an additional about $5 billion from anchor investors, the person added. Cinda is set to price the IPO on Dec. 4.
China Life Insurance Co and Och-Ziff Capital are each committing $200 million, while Temasek Holdings unit Farallon Capital Management has agreed to buy $100 million, people familiar with the matter said.
Oak Tree, the world’s largest distressed debt investor, is pledging about $53 million, while Ping An Insurance is committing $75 million to the IPO, the people added.
Cinda, along with its underwriters, had to turn down some bids on the cornerstone tranche due to heavy demand, a separate source said. Cornerstone investors in IPOs receive a guaranteed allocation in exchange for agreeing to retain their stakes for a set amount of time.
Demand for the IPO is driven in part by the view that China’s financial system is set for an increase in non-performing loans as the economy slows. That increases the need for the services provided by Cinda and the other three bad debt management firms.
RISING BAD LOANS
Already bad loans held by Chinese banks climbed by 24.1 billion yuan ($3.96 billion) to 563 billion yuan at the end of September, marking the largest quarterly rise in the volume of bad loans since the fourth quarter of 2005.
The IPO would provide a rare view into China’s financial system with investors keen to scan Cinda’s upcoming IPO prospectus for recovery rates on bad loans, its main holdings and the way in which it values billions of dollars in real estate.
Other cornerstone investors in Cinda include, Shangdong Guotou with a $60 million pledge, Chinese fund manager Rongtong with $100 million, another long-only fund manager Haixia ($100 million) and Yudean ($50 million).
Cinda will offer in an indicative range of HK$3.00-$3.58 each, equivalent to a price-to-book ratio of 1.10 to 1.30 times for 2013. Chinese banks listed in Hong Kong trade at an average of 1.2 times trailing P/B, according to Thomson Reuters data.
Cinda is one of four asset management companies that Beijing established in 1999 to absorb toxic assets held by the China’s four biggest banks. It was set up to take on the bad loans at China Construction Bank, the country’s No. 2 lender.
Cinda is the most profitable and the first of the four bad loan managers to seek a public listing, with company disclosures showing large and steady growth of its operations.
It has stakes in a raft of companies obtained through debt-to-equity swaps, including holdings in Aluminum Corporation of China (Chalco) and China Gezhouba Group , the main construction firm in charge of the massive Three Gorges Dam project. It has property holdings worth at least 2.3 billion yuan, mostly seized from companies that failed to pay their loans.
Bank of America Merrill Lynch, Credit Suisse , Goldman Sachs, Morgan Stanley and UBS were hired as joint coordinators of the IPO.
Sources declined to be identified as the information is not public yet. The companies mentioned in this report were not immediately reachable for comments.
(AGENCIES)
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