Blackstone acquires $200m China NPL portfolio

The New York-based firm acquired the portfolio of mainly real estate-backed loans from Chinese asset management company Huarong AM last week.

Blackstone has acquired a portfolio of Chinese non-performing loans (NPLs) for $200 million from Huarong Asset Management, one of the big four asset management companies in China, according to PERE’s sister publication Private Debt Investor.

The purchase price is understood to be 47 percent of the portfolio’s outstanding principle balance (OBP) excluding accrued interest. The portfolio is composed of 160 individual loans owed by corporates in Guangdong province in South China and the majority of the loans are secured by real estate assets in the same region.

Blackstone is not the only foreign investors bidding in China’s NPL market. In June, Bain Capital Credit bought a $200 million-valued NPL portfolio in China following the launch of its $1-billion Asia credit fund.

Yet, despite transactions by the most well-known global investment houses, closing Chinese NPL deals has proved to be difficult for foreign investors due to the high pricing and the related risk-adjusted return.

“Unlike the US and Europe, every loan in China is a special situation,” said an Asian private debt fund manager. The manager explained that the cost to conduct due diligence and to go through the legal procedures is high in China.

There is also a return expectation mismatch, according to a recent report from PWC, which said many foreign investors are seeking high teen IRRs to compensate for China’s risk premium while only high single digit or low double digits IRR have been seen in the latest NPL cycle in China.

“If you are an investor that takes the view that market for foreign investors will eventually open up, you need to start to build your deal sourcing, underwriting and servicing capability,” according to the report. “However, the amount of short-term uncertainty around the opportunity means that justifying the cost of making this investment is not simple.”

Earlier this month Blackstone sealed one of the largest NPL deals in Europe when it agreed to acquire 51 percent of Popular's portfolio, made up of repossessed assets worth an estimated €18 billion and €12 billion of non-performing loans.

The amount Blackstone will pay to buy a majority stake in the property portfolio of Santander-owned Banco Popular is understood to be about €5 billion.