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Morgan Stanley looking to China's NPLs
( 2002-09-05 10:07) (1)

Despite its landmark purchase late last year of non-performing assets from a State-owned asset management company and the subsequent stall in proceedings, Morgan Stanley is considering further moves into the risky yet potentially lucrative Chinese business sector.

The investment banking giant is seeking a broader involvement in the country's increasingly urgent drive to recover its mountainous non-performing loans (NPLs).

"We are in touch with almost every bank you can think of," Zhao Jing, executive director and newly-appointed chief representative of Morgan Stanley in Beijing, said this week.

"The bigger it is, the better economies of scale. The broader the composition (of NPLs) is, the better it is for Morgan Stanley."

In a breakthrough in China's battle for NPLs, the Huarong Asset Management Company signed a deal last November to sell 10.8 billion yuan (US$1.3 billion) of non-performing assets to an international consortium led by Morgan Stanley.

The consortium also included the Lehman Brothers, Salomen Smith Barney and KTH Capital.

The buyers and Huarong have agreed to establish a joint venture to manage the assets but are still waiting for the final approval.

Zhao said it is only a matter of time. "It's the first time (foreign investors bought non-performing assets), so there are new issues to handle."

Although she said it is proceeding smoothly, she would not say when the approval is expected to be made.

Zhao said the joint venture will be established shortly after the approval and become operational.

Analysts say the high NPL ratios are seriously hindering reform in China's four State-owned commercial banks, all of which have announced plans to list, typically in five years.

The deal between Morgan Stanley and Huarong, they say, is a test for the possibility of large-scale foreign participation in solving China's bad loan problem, which the government is increasingly inclined to resolve.

"If the recovery (of bad assets) turns out to be good, everybody will come and the price will then rise," Zhao said.

The central bank said the four asset management companies recovered 45.4 billion yuan (US$5.5 billion) in cash by the end of June, 21.6 per cent of the non-performing assets they had disposed of.

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