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China Development, Lone Star end bad-loan venture

China Development Financial Holding Corp (中華開發金控) and Lone Star Funds ended a venture to manage bad loans, the second time Taiwan's third-largest financial company by market value has parted ways with a foreign firm.

Texas-based Lone Star and China Development Asset Management Corp (中華開發資產管理公司), which in January signed an agreement on the joint venture, are now operating separately, China Development Financial spokeswoman Grace Fang (方鳳山) said, confirming a Chinese-language newspaper report.

"We have different views on the valuation of problem assets and how to share them," Fang said. ``Going our separate ways will be better for China Development as well as Lone Star.''

China Development failed to set up a similar venture with Morgan Stanley last year, and now plans to go it alone. Taishin Financial Holdings Co (台新金控) and CTB Financial Holding Co (交銀金控) are among Taiwanese banks that have set up their own asset management units, to reduce the more than NT$1.4 trillion (US$40.3 billion) of bad loans from last year's recession and a decade-long property-market slump.

"The pressure is increasing on banks to write off their bad loans," said Susan Chu, a bank analyst at Taiwan Ratings Corp (中華信評), a Taiwan venture by Standard & Poor's. "Local banks are starting to recognize their problem assets and their price in the market."

The breakdown in the venture comes a month after China Development Asset beat Lone Star and three other foreign asset management companies for the NT$9 billion (US$259 million) of bad loans auctioned by United World Chinese Commercial Bank (世華銀行).

The company doesn't need another partner to buy problem assets, said spokeswoman Fang. Still, it doesn't rule out the possibility it may work with another foreign partner "on special cases such as buying a troubled steelmaker."

Lone Star and China Development have been competing with Cerberus Asia Capital Management LLC, Lend Lease Corp and other asset-management companies to buy dud credits, which make up 10.17 percent of total loans as of September, according to the central bank.

Including estimated unreported bad loans, Standard & Poor's expects the non-performing loan ratio in Taiwan to fall to 15 percent by the end of the year from 18 percent, Chu said.

"It's hard to tell if the local asset management companies have the capacity to handle bigger bad-loan cases," Chu said. Managing their own loans "is a balance between timing and profitability."
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