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World’s biggest investors keen on IPO as Cinda aims to seek US$2.5b
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China Cinda Asset Management Co lifted the lid on how the country turns bad loans from its banks into profits, issuing a prospectus yesterday for an initial public offering that has reeled in some of the world’s biggest investors.
The IPO, seeking up to US$2.5 billion, is set to be the largest in Hong Kong this year as sovereign wealth funds join hedge funds in betting that soured loans will be a growth business in China’s slowing economy.
Cinda plans to list shares on December 12. It’s one of four debt collectors created in 1999 by China’s Ministry of Finance to process bad loans made by the country’s biggest banks to a wide range of companies.
Little had been known about financial operations at the firms, known as asset-management companies, until a filing last year on a Cinda bond offering and now yesterday’s prospectus. Huarong Asset Management Corp is the next AMC expected to seek an IPO, hoping to raise up to US$2 billion, though no timetable has been set.
Cinda’s 710-page filing shows steady growth in assets and profit in recent years. Yet it also reveals a drop in return on equity, underlining the company’s need to diversify its lines of business.
“We think the proceeds will be used to continue to diversify and grow Cinda’s investment, asset management, insurance, and other financial services,” said James Antos, banking sector analyst at Mizuho Securities Asia.
In the filing to the Hong Kong stock exchange, Cinda said total assets rose 11 percent to 283.55 billion yuan (US$46.5 billion) as of June 30, versus the end of December.
That makes it a significant player in distressed debt when stacked against global peers. By comparison, Oaktree Capital Management, the world’s largest distressed debt manager and also an investor in Cinda, had US$79.8 billion under management as of the end of September.
Cinda said one of the main ways it conducts the distressed asset management business is by buying assets at a discount and selling them later for a profit. It also conducts debt-to-equity swaps, where Cinda ends up owning shares of companies whose debt it owns.
The total book value of Cinda’s assets acquired through debt-to-equity swaps is US$7.2 billion, with unlisted companies accounting for about 79 percent.
Set up to handle the bad loans of China Construction Bank, the country’s No. 2 lender, Cinda said profit attributable to equity holders was 4.06 billion yuan for the six months ended on June 30, 2013. That was up 36 percent from 2.99 billion yuan a year earlier.
But the company also said its return on average equity (ROAE) declined from 43 percent in 2010 to 30.4 percent in the six months ended on June 30, 2013. Distressed asset management is Cinda’s primary business, accounting for 72.3 percent of profit before tax for six months ended June 30, the company said.
A group of 10 investors, including Norway’s sovereign wealth fund and Och-Ziff Capital Management Group LLC, have together committed to buy about US$1.1 billion of stock as cornerstone investors.
In March 2012, Cinda raised US$1.6 billion by selling shares in the company to four investors, which included Swiss Bank UBS, Standard Chartered and CITIC Capital, which bought below 5 percent each.
In its IPO, Cinda is offering 5.32 billion new shares in an indicative range of HK$3 to HK$3.58 (39 to 46 US cents) each, valuing the sale at up to HK$19 billion.
Hong Kong’s biggest 2013 IPO before Cinda was Sinopec Engineering Group Co’s US$1.8 billion listing in May.
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