China's state-backed private equity starts a fund to buy out distressed debt, take advantage of nation's deleveraging campaign

By Zheng Yangpeng / | May 14, 2019 10:48 AM SGT
Citic Capital, one of the largest private equity firms backed by the Chinese state, is raising US$500 million for its first buyout fund for distressed assets in China, placing a bet on the opportunities available in the country's campaign to shed debt.
"There are lots of good real estate projects with stable operating income, but which are sold simply because they, or their owners, have run into liquidity problem," Citic Capital's senior managing director Stanley Ching, who oversees the company's real estate business, said in an interview with South China Morning Post. "We see great opportunities in this sector."
China's government has been arm-twisting state-owned companies and private entrepreneurs since 2017 to pare debt, in an effort known as the "deleveraging campaign" to shield the country's banking system from the kind of financial risk that plunged the US and the world economy into recession in 2008.
During the campaign, highly leveraged asset buyers like the Anbang Group, the Dalian Wanda Group and the HNA Group were put under scrutiny for their debt-fuelled acquisitions. HNA has sold more than US$25 billion of assets including land plots in Hong Kong, office towers in New York and its stake in Hilton hotels to repay its borrowings.
Many private enterprises and state companies are embarking on a similar slimming exercise, though more discreetly, offering premium assets that otherwise would not consider selling.
The most recent epic sale was the US$7.2 billion disposal in January of two prime sites in Beijing and Shanghai by China Oceanwide Holdings Group to Sunac China Holdings, the biggest buyer of Chinese real estate when it took 43.8 billion yuan (US$6.4 billion) worth of 13 tourism-related projects off Wanda's hands in 2017.
Citic, the investment arm of Chinese state-owned conglomerate Citic Group, is joining a handful of funds in hunting problematic assets for profits.
Paladin, a distressed debt investor affiliated with Country Garden, China's largest developer, launched a US$1billion special situation fund in May 2018 with Gaw...