Colony Capital, the US-based investment firm focused primarily on real estaterelated investments, is aiming to capitalise on the newfound willingness of the Chinese Government to countenance the disposal of non-performing loans (NPLs) to foreign investors.
Colony recently announced a $100 million (€84.6 million) first closing of The Yangtze Special Situations Fund LP, a joint venture with Chinese conglomerate Shanghai Industrial. The fund will invest in China and to a lesser extent Hong Kong and Macau, targeting NPLs, distressed assets, and distressed companies and financial institutions.
Until recently, the Government was reluctant to approve NPL deals involving overseas funds, but it recently implemented faster regulatory approval processes to encourage such transactions. Some may view this as part of China's new spirit of openness that has encouraged overseas investment into the country in many different areas. But it is also a move born of pragmatism.
According to Standard & Poor's, the country's bad loans currently total around $860 billion. Amid an investment boom, lending by Chinese banks hit $350 billion last year, up 21.1 percent on 2002 according to Business Week, leading to fears that the problem will be exacerbated as an oversupply of capital finds it way into some unwise investment projects.
Now the willingness of the authorities to try and deal with the problem has reinvigorated the interest of investors – and Colony is hoping to benefit. “The Chinese Government and business community are aligned in their determination to rectify many of the nation's non-performing and inefficient assets. We welcome the opportunity to become involved in that important effort,” said Thomas J Barrack Jr., chairman and CEO of Colony and CEO of The Yangtze Special Situations Fund.
The fund, which is seeking $500 million, has secured commitments from anchor investors such as the International Finance Corporation and Asian Development Bank as well as “other international financial institutions”. Investments will be sourced and managed by Colony and Shanghai Industrial professionals in China.
Colony claims to have been one of the first international private equity firms to have moved into Asia and has invested more than $600 million in over 3,500 assets in the region since 1998. Based in Los Angeles, the firm has Asian offices in Seoul, Shanghai, Taipei and Tokyo.
Shanghai Industrial, which was founded in 1981, is a Chinese conglomerate with more than $4 billion in assets. Based in Hong Kong, it has executive headquarters in Shanghai and a dozen Chinese offices in total, as well as nine other offices around the world.