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Lone Star eyes troubled loan market

Lone Star Fund III LP of the US and China Development Asset Management Co (中華開發資產管理) may sign an agreement this month to set up a company that will buy bad loans from Taiwan's banks.

Lone Star will probably take a stake of as much as 70 percent and the unit of China Development Industrial Bank (中華開發銀行), Taiwan's biggest lender by market value, the rest in a company that will buy the bad loans at a discount, said Xie Wei-jin, president of China Development Asset Management.

On some loans "we'll try and get the debtors to pay and some we may re-package and sell to others," Xie said.

Lone Star officials didn't return calls seeking comment.

Taiwan's banks are grappling with rising loan defaults as the nation enters its worst recession on record, with analysts saying the economy will probably shrink 2.6 percent this year.

Taiwan, where bad loans are defined as those on which no interest has been paid for three months or principal for six months, said more than 11 percent of bank lending was non-performing or in trouble at the end of September.

Private-sector estimates are as much as two times higher.

"Our government is forcing banks to write off non-performing loans quickly and to make their financial information more transparent," said Chang Ming-daw, director of the division of domestic banking at the Bureau of Monetary Affairs, part of the Ministry of

Finance.

Chang said the nation's banks have written off NT$114 billion of bad loans in the first nine months of this year, compared with NT$163 billion last year.

Lone Star is the latest foreign company seeking a Taiwan counterpart to buy bad loans.

Earlier this month, Lehman Brothers Holdings Inc and Hua Nan Commercial Bank (華南銀行) said they will each take a 50 percent stake in a company that will buy NT$10 billion (US$290 million) of bad loans from Taiwan's second-biggest publicly traded lender by assets.

In August, Lend Lease Corp, Australia's largest property developer, and Taishin International Bank said they'll set up a venture to buy and manage bad loans held by Taiwan banks and finance companies.

Xie said China Development and Lone Star plan to set up a property company that will buy non-performing loans and a service company that will manage the loans.

"We haven't finalized" the details of the agreement, Xie said.

The partnership will be non-exclusive, allowing China Development Asset Management to seek similar agreements with other foreign companies.

China Development Industrial Bank had earlier been in talks with Morgan Stanley Dean Witter & Co to set up a company to buy non-performing loans from Taiwanese financial institutions.

Xie said the bank is still talking to Morgan Stanley.

Goldman Sachs Group Inc and Chinatrust Commercial Bank (中國信託銀行) have also signed an agreement to form a company to buy non-performing loans.
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