Bad-debt bank unit’s US$1b fund eyes foreign capital in real estate
Print Edition
A unit of one of China’s biggest bad-debt banks plans to woo foreign investors with a US$1 billion fund for soured property loans and distressed real estate assets, reopening the sector to outsiders after a failed attempt last decade.
That the fund is being launched just as growth in the world’s second-largest economy has slowed to an 18-month low and the housing market is slowing is no coincidence.
China Orient Summit Capital, 80 percent owned by China Orient Asset Management Corp, will use its connections to help foreigners invest in an attractive but sometimes treacherous market for distressed assets, Chief Executive Lijian Chen said.
“We see the cycle coming,” he said, referring to an expected cooling down in the housing market. “Especially since this is synchronized with the economy.”
And China Orient Summit wants to be ready. Founded in February, it has sought regulatory approval for its new fund, which would target institutional investors and pension funds in the United States, the UK, and the Middle East.
“The best deal in any country, always, is going to be the off-market deal,” Chen said in an interview at the firm’s office in downtown Beijing. “You have to explore the relationship, you have to explore the off-market opportunity.”
This was especially important as deals were often sealed behind the scenes, even at open auctions, he said. For instance, at a recent auction for a plot of land in east China’s Ningbo, the winning bid went to a firm that promised the local government it would move its headquarters to the city, thereby lifting future employment and tax revenues.
“So if you just go there and say ‘OK, this is open price, so I’m going to put in my bid because I have capital,’ then you are just too naive.”
Direct foreign investment in property is strictly curbed by the government, which fears excessive speculation.
China has always stood out among investors as a compelling market for buying bad loans and distressed assets, but never lived up to its potential. An attempt to launch a market for distressed assets quickly evaporated in the mid-2000s.
Foreign investors said the market died because auctions were rigged, laws were opaque, and governments resisted corporate bankruptcies. Chinese authorities said foreigners were trying to buy assets at unreasonably low prices.
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