$2.3 Billion IPO for Chinese ‘Bad Bank’

By Ravinder Kapur

China’s largest manager of distressed debt, China Huarong Asset Management, has completed a $2.3 billion initial public offering (IPO) in Hong Kong in which 5.77 billion shares were sold at HK$3.09 each, landing near the bottom of the company’s price target, which ranged from HK$3.03 to HK$3.39. China Huarong is a “bad loan bank,” which had earlier attracted $2.4 billion from eight investors, including Goldman Sachs and Warburg Pincus, in August last year.

The New York Times reported that for the current IPO, the bank had secured China Huarongcommitments worth $1.6 billion from 10 “cornerstone” investors who will not be allowed to sell their shares for six months from the date of the listing. The biggest cornerstone investor is a company known as ‘Fabulous Treasure,’ a subsidiary of the real estate developer Sino-Ocean Land and State Grid Yingda, who have committed $684 million and $300 million respectively. Both are state-owned companies.

The IPO was the largest in Hong Kong this year, coming soon after the $2 billion offering by China Reinsurance Group. The city’s benchmark Hang Seng Index had fallen by 20% in the third quarter as a result of the uncertainty in the Chinese economy, and this condition has led to an IPO slowdown.

China Huarong Asset Management is one of four large asset-management companies set up in the 1990s to take over 1.3 trillion yuan ($203 billion) of bad loans issued by state-owned banks.

The Huarong deal is smaller than that of China Cinda Asset Management, which went public two years ago when it completed a $2.8 billion I.P.O. at HK$3.58, the top of the range it had set. The company had received more than $65 billion in orders. The shares are now trading below their listing price.

China Huarong Asset Management’s I.P.O. was handled by Goldman Sachs, HSBC, the China International Capital Corporation, Citibank and Industrial and Commercial Bank of China.

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