Oaktree, Cinda allocate $1bn to China distressed debt

The two asset managers have established a joint venture as Howard Marks’ Oaktree builds its China presence.

Oaktree Capital Management and China Cinda Asset Management have entered into a memorandum of understanding to jointly invest in distressed assets in China and to cooperate in distressed investments outside China, according to a company statement.

The firms did not disclose the size of the joint venture, but a source close to the matter confirmed to Private Equity International that each party has committed up to $500 million to invest in China’s distressed debt market, meaning total investment could reach $1 billion.

“We are excited to partner with Cinda, the market leader in distressed investing in China. Cinda's experience and expertise in China is unparalleled and will afford us a unique opportunity to participate in China’s distressed debt markets. At the same time, we look forward to sharing our global insights and expertise with Cinda,” John Frank, managing principal at Oaktree, said in the statement.

Oaktree declined to comment beyond the statement.

The $80 billion US asset manager was also a cornerstone investor in China Cinda’s Hong Kong IPO this week, PEI’s source confirmed.

China Cinda reportedly attracted 10 cornerstone investors for the potential $2.5 billion listing, which is set to be priced on 4 December. Cinda is currently offering 5.3 billion shares and set a range of HK$3.00 (€0.28; $0.39) to HK$3.58 per share.

Chris Rynning, chief executive of Beijing-based Origo Partners, commented on the move by Oaktree today, saying, “Seems somewhat conflicting with Oaktree being a Cinda shareholder already and likely participant in the upcoming IPO. [However], I think it is a great move by Oaktree. Distressed opportunities in China will be plentiful as one moves ‘decisively’ to more market-oriented reforms and a JV with Cinda may be pretty, pretty good – possibly better than buying into Cinda.”

Rynning adds that Oaktree is reportedly expanding its Beijing office and adding more experienced people on the ground there.

Moreover, on his recent trip to Hong Kong, Howard Marks, founder of Oaktree, noted the firm’s intention to increase its activities in China, telling investors he is bullish about emerging markets in general.

“Emerging markets still possess outstanding long-term potential based on demographics and a low starting point, although they are highly dependent in the short term on events in the developed world and China. Relative price corrections have rendered valuations attractive,” he said in a statement following the visit.

However, some industry professionals are less optimistic about valuations in China’s distressed debt market.

“Chinese assets in general, and loans in particular, are mispriced for risk. Part of that is the dominance of the local banks who don’t price for risk at all as far as I can see. So it is quite hard to make business onshore in China, especially with the state-owned enterprises,” Jake Williams, deputy group chief risk officer at Standard Chartered Bank, said on a panel at PEI’s Private Debt Investor Asia Briefing earlier this month.