Insiders said that private funds like PAG and Long Star are starting to be interested again in returning to Chinese non-performing loan (NPL) portfolios in recent months. Government loose credit policy in the last three years has boomed the NPL market, which has reached over 3 trillion US dollars at the end of last year. Government also tried to decrease the risk by turning NPL into ABS.
Sabita Prakash, a director at ADM Capital said most of Chinese NPL comes from traditional overcapacity industries. They hope to restructure financial profiles after holding a relatively lower interest rate borrowing from commercial banks.
The true size of NPL in China (like in any other country) has always been unclear. If there were to be a market-driven interest in the trading of NPL, this could bring clarity and fair pricing for this distressed asset. Investment in distressed assets is indeed a positive development, but it needs to be matched with the possibility to have total freedom to long or short without restrictions. So, we are still a long way.