China’s four big ‘bad banks’ are facing ups and downs
Ant, which is in the midst of a restructuring, founded Chongqing Ant in June to keep its consumer-lending business and comply with financial regulations. Ant is owned by half of the Chongqing unit, with the rest by six other companies. Sinda’s subsidiary Nanyang Commercial Bank is the second largest shareholder with a 15% stake.
In December, Chongqing Ant said it expected to receive a $3.5 billion capital increase, equivalent to $943 million coming from Cinda.
That proposed share sale would almost quadruple the registered capital of the business to 30 billion yuan, the equivalent of $4.7 billion. This would give Chongqing Ant a larger balance sheet for lending to individuals, paving the way for the company to take on Ant Group’s existing consumer-lending portfolio. The additional investment planned by Cinda – a 20% stake – will take its total stake in Chongqing Ant to 24%.
Hong Kong-listed shares of Cinda fell 10% in Friday trading after the company said it would no longer hold the deal. Shares had surged at the end of December.
Sunny Optical Technology (Group) Company and Jiangsu Yuu Medical Equipment and Supply Co., two other shareholders of Chongqing Ant, which had earlier also agreed to raise capital, said on Friday that they are suspending their investment in light of SYNDA’s decision. Will give
Cinda’s withdrawal from the December settlement means Ant’s consumer-finance arm will have to revise its capital-raising plans.
Chongqing Ant said on Thursday that it fully respected Cinda’s decision. The company said that under the guidance of regulators, it will hold discussions with investors, expedite capital raising proposals and effectively improve the consumer-finance business.
It’s a volatile time for China’s top four bad debt managers. Institutions were set up in the late 1990s to collect non-performing loans from state-owned banks. However, over the past two decades, these “bad banks” aggressively expanded into other businesses through deals and acquisitions, raising regulatory concerns.
Uncontrolled growth ran its course with the fall of Lai Xiaomin, former chairman of China Huarong Asset Management Company, one of the four bad banks. In January 2021, Mr Lai was sentenced to death after being found guilty of bribery and embezzlement. He was executed a few weeks later. In November, months after reporting heavy losses, Huarong said it would receive $6.5 billion in capital from state-owned financial institutions.
Regulators have since tightened their grip on all four bad-debt managers. The companies have been told to return to their native places and focus on their core business of managing bad debts and stressed assets. The Central Commission for Discipline Inspection, the Communist Party’s antigraft watchdog, showed last January that the four had consolidated or deregistered a total of 56 subsidiaries.
For Ant, the Chongqing entity will allow it to diversify its funding sources for loans given to millions of Chinese citizens and to subject its popular consumer loan products to full regulatory oversight. Ant has rebranded some loan offerings on its popular Alipay app, making it clear to users whether they are borrowing from external lenders or the company itself. It is fully integrating consumer credit data collected from these operations into government credit-reporting systems.
Write Jing Yang at [email protected]