Among the sneakers, diapers and pet food for sale on Taobao.com (淘寶), China’s biggest e-commerce platform, is a listing that might take up a little more space in the online shopping basket.
For 4.15 million yuan ($610,276), customers on the site owned by e-retailing giant Alibaba Group Holding Ltd (阿里巴巴) can bid for the debt of a steelmaker from Zhejiang, a coastal province in eastern China. The company has failed to pay back a 9.95 million-yuan loan, including interest, so a distressed asset manager is auctioning it off to the highest online bidder. It is not the only bad debt for sale on Taobao.
Used by millions of Chinese to buy everything from clothes to food and electronics, the platform, known for its bargains, typically markets more than 1 billion yuan of soured assets per day, according to Bloomberg calculations.
Listings include a portfolio of 118 non-performing loans (NPL) from some companies in Yunnan Province, a villa seized by a bank in the southern canal city of Shaoxing and a property in central Beijing that is also in default.
Slowing growth and an uptick in corporate defaults has fueled the debt market, with non-performing loans at commercial banks more than doubling over the past two years to 1.6 trillion yuan as of the end of March.
As Beijing pushes lenders to find market-oriented ways of dealing with soured loans, interest in distressed debt has climbed, spurring banks and asset managers to look beyond traditional venues such as auction houses and exchanges to dispose of the assets.
China Cinda Asset Management Co (中國信達資產管理) — one of the country’s biggest distressed asset managers, and the firm marketing the steel company’s debt — last month said that it is collaborating with Alibaba to set up a special section on Taobao to auction its wares.
Although Alibaba declined to provide data on actual sales, the advertising of such loans shows how interest in the market for China’s distressed debt is developing.
Following Taobao’s lead, more than 50 other Web sites marketing their services to banks and other sellers of bad loans emerged in China in the first half of last year, a March report from PricewaterhouseCoopers LLP said.
More than 20 financial institutions are listed as partners on Taobao’s auction platform for soured assets, including Shenzhen-based Ping An Bank Co (平安銀行), Beijing’s China Minsheng Banking Corp (中國民生銀行) and China Citic Bank Corp (中信銀行).
However, bad-loan investing is not like trading equities or even ordinary debt, which raises questions over the opening up of the market to rank-and-file investors.
Interaction with the seller is important in an NPL transaction and the deals can take months to complete, said Andrew Brown, a partner for macroeconomics and strategy in Hong Kong at ShoreVest Capital Partners Ltd, which invests in Chinese bad loans.
“The online auction sites open the marketplace up to potential buyers that may not be as diligent in the required analysis that we deem appropriate to price a portfolio,” he said. “If you are developing a platform for NPL portfolios, the question is does it allow for appropriate time and access to do the research? It’s not like buying and selling stocks.”
On Taobao, distressed assets are typically advertised several weeks or months before the auction date.
The listing for the Zhejiang steelmaker’s debt says interested investors can call a local branch of Cinda for information on the offer, and includes details and photos of the collateral: a 240m2 apartment in Hangzhou.
Song Lingling (宋玲玲), a partner at Beijing-based distressed debt fund DCL Investments (鼎一投資), said disposing of NPLs on Internet platforms can be less complicated than via auction houses, which usually charge commissions.
Her firm has used Taobao to buy and sell soured assets, she said
“Conducting NPL auctions online has increasingly become a trend,” she said. “More investors are using Taobao as a platform because of the simplicity, transparency and confidentiality of the bidders’ identity.”
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