Firm confident after risky purchase of NPLs

Ruian Huafeng looks for new ventures as bet set to pay off

Having successfully disposed of some of the non-performing loan assets it acquired late last year from a State-owned bank, Ruian Huafeng Private Capital Management Corp of Wenzhou said it is confident that it can make profits on the transaction.

"While we are working on settling the remaining portion of the assets we bought, we have gained enough confidence to be looking for new acquisitions," said Weng Yifeng, the deputy manager of Huafeng Group, the parent company of the private capital management corporation. "Now that we've tried it, we can tell you it's really not rocket science," he said.

Maybe not. But Huafeng's latest exploit is being closely watched by many Wenzhou entrepreneurs who are staying alert for opportunities to use their excess funds at a time when reinvestment in manufacturing is held down by sagging overseas demand.

In November, while talking to executives of the Wenzhou Branch of Industrial and Commercial Bank of China, Huafeng received an offer Weng said he couldn't refuse: the collateral assets of the bank's 270 million yuan ($43.4 million) loans that were deemed non-performing.

Of course, he was aware of the risk. But being a money man in Wenzhou, "I take risks all the time", Weng said.

He also knew that there was no precedent for the first-ever transaction in which a privately owned enterprise would relieve a State-owned bank of its non-performing loans.

He went ahead anyway, thinking, as he said, "it would be fun" to do something nobody has done before.

"We've estimated and valued those assets of the non-performing loans to ensure that they still have a certain potential to be sold at profitable prices before buying them last year," Weng said.

The creditor of those loans has been transformed from the bank to Huafeng legally after approval from the local court, which will give all the proceeds of the auctioned assets directly to Huafeng.

In the past two months, Huafeng, the third private capital management corporation in the city under the ongoing financial reform, has so far earned a profit of about 10 percent from the sold assets.

"Fortunately, we've made certain profits from the deal, which will solve the problem of the bank's non-performing loans," Weng said.

Launched in August 2012, Huafeng private capital management arm was keen to bring private capital into the real economy and gather investors into certain local potential projects among small and medium-sized enterprises.

"We're trying to gather more private capital to expand the investment market and make better use of the money," Weng said.

Following Huafeng's lead, more private capital management companies have, and are, signing agreements with local branches of banks on buying the assets of non-performing loans.

Cangnan Ruifeng private capital management corporation agreed with the Wenzhou branch of Huaxia Bank for the transfer of assets of non-performing loans worth 100 million yuan, and three more companies are negotiating with banks on detailed conditions.

Zhang Xiaochun, director of the regional finance department in the city's finance office, said: "Private enterprises like Huafeng can make money from the deals directly after those assets are put in the public auction, while the banks are no longer worried about how to improve the asset structure of the non-performing loans."

Zhang added that more efforts will be made by the local government to minimize the cost of similar deals and create a better environment to encourage more privately owned enterprises to buy the assets.

Four State-owned capital management companies were launched in 1999 to buy, manage and deal with the assets of the non-performing loans from the State-owned banks.

Up to the end of 2011, the total amount of assets worth nearly 4 trillion yuan were bought, 2.92 trillion of which were handled by claiming 687.6 billion yuan with a recovery rate of about 24 percent.

"The participation of privately owned enterprises will be a method to manage those assets in an efficient way with profitable returns," Zhang said.

From the perspective of experts, buying non-performing loans is a good trial of a privately owned company entering the financial market, but it will still take time to see whether it is a good idea.

Liu Shengjun, executive deputy director of CEIBS Lujiazui Institute of International Finance, said more regulations and policies need to be drafted to encourage private companies to buy such non-performing loans from State banks.

yuran@chinadaily.com.cn

(China Daily 01/23/2013 page15)