A report in today’s Financial Times says Lone Star, the US private equity firm that focuses on the turnaround of distressed assets, is about to announce the closure of its Beijing office along with a general scaling down of its operations in China.
The newspaper reported a source in the firm’s Beijing office as saying: “Yes, we are closing. This is a decision made recently by our headquarters. We can’t comment on it.”
Lone Star recently raised a $5 billion (€4.1 billion) fund for investments in Asia and Europe. It is understood that the firm will still look for deals in China, but does not see it as one of its more important target markets.
Overseas investors have been attracted to China by the existence of a huge bad debt problem, with the country’s non-performing loan (NPL) portfolio reckoned to be worth around $400 billion. However, the slow pace of disposal of these assets by China’s banking community has resulted in frustration among those keen to acquire them. The Beijing source cited in the report agreed that lack of deal flow was one of the reasons for Lone Star’s decision.
Five years ago, the Chinese authorities set up four asset management companies to oversee the sale of bad loans, but it is believed only one major deal has completed since then. It is understood that withdrawal by Lone Star may tempt other foreign investors to follow them through the exit door.
Lone Star is estimated to have invested around $5 billion in Asia in the last few years, but most of this activity has centred on Japan and South Korea. Last year, the firm acquired Korea Exchange Bank in a $1.2 billion transaction.