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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (15085)	11/8/2004 12:30:37 AM
From: RealMuLan	Read Replies (1) \| Respond to of 116555

Citigroup to Pay $109 Million for Silver Grant Stake (Update2) Nov. 8 (Bloomberg) -- Citigroup Inc. is paying HK$845 million ($109 million) for a stake in Silver Grant International Industries Ltd., partly owned by China's biggest buyer of bad loans, expanding its distressed asset business in the world's fastest-growing major economy. Citigroup, the world's largest financial services company, will buy 169.45 million new shares in Hong Kong-based Silver Grant at HK$2.63 each. The New York-based bank said it will also buy convertible notes worth $52.5 million, giving it a total stake of 16.4 percent in Silver Grant's expanded share capital. Citigroup is vying with Goldman Sachs Group Inc., Morgan Stanley and other investment banks to buy bad assets in the world's second-biggest non-performing loan market, where the biggest banks had 1.7 trillion yuan ($205 billion) of distressed loans at Sept. 30, according to the China Banking Regulatory Commission. Standard & Poor's estimates bad loans at all Chinese financial institutions may be as high as 40 percent of total lending and it would cost $656 billion to bail them out. ``Strategically, it makes a lot of sense,'' said Tim Clissold, the former general manager of Goldman's non-performing loan business in China and author of ``Mr. China''. ``Citigroup have gotten in bed with one of the major and credible players in the market. Once the domestic market for distressed assets breaks wide open, they'll know how to collect.'' Bad Loans Bad loans at the four big state-owned banks, Industrial & Commercial Bank of China, Bank of China, China Construction Bank and Agricultural Bank of China, increased by 36.5 billion yuan in the third quarter to 1.56 trillion yuan, or 15.7 percent of their total lending, the regulator said. Silver Grant Chairman Zhu Dengshan, previously vice president of Construction Bank, is also the chief executive of China Cinda Asset Management Corp. Cinda, set up in 1999 to help dispose of bad loans at Construction Bank, is the biggest shareholder in Silver Grant, owning 18.84 percent of the stock. After the new shares are sold, Citigroup will be the second- biggest stakeholder, the statement said. ``The biggest challenge is the non-performing loan market in China is too big to depend just on domestic investors,'' Zhu said on Oct. 18. ``There are not enough investors, especially foreign investors.'' The two companies may also set up a joint venture to invest in non-performing assets in China, according to the statement. Cinda China Cinda earlier this year bought 64.1 billion yuan of bad loans from Bank of Communications and 278.7 billion yuan of bad loans from Bank of China and China Construction Bank, the first time an asset manager acquired distressed assets at a discount. It had non-performing assets with a face value of 800 billion yuan as of October. ``Since early this year, the Ministry of Finance has allowed the asset managers to sell non-performing loans at a discount to book value,'' said Tony Liu, associate director of research at DBS Vickers (HK) Ltd. ``That gives them greater flexibility.'' China Cinda's cash recovery ratio on bad loans as of September was 28.3 percent, the highest among the four asset management companies set up by the government to dispose of bad loans at the four big banks in 1999, Zhu said last month. The country's 11 joint-stock banks had about 140.2 billion yuan of bad loans at the end of September. Citigroup has purchased more than $2 billion of bad loans in Hong Kong and China, including $1.8 billion from a Cayman Islands unit set up by BOC Hong Kong (Holdings) Ltd., a unit of Bank of China, in December last year. Shares of Silver Grant, up more than 70 percent since the end of July, rose 0.8 percent to HK$3.30 in early trading in Hong Kong. The stock was suspended on Thursday and Friday. To contact the reporter for this story: Patricia Cheng in Hong Kong at pcheng9@bloomberg.net To contact the editor responsible for this story: Bill Austin in Tokyo at billaustin@bloomberg.net Last Updated: November 7, 2004 21:04 EST bloomberg.com