Chinese banks build up distressed asset teams as bad debts mount
Chinese banks are bolstering their offshore loan recovery teams as they face a wave of bad debts linked to struggling overseas businesses and acquisitions.
ICBC, Bank of China and China Construction Bank, along with several other large Chinese financial institutions, have rapidly expanded recovery and restructuring operations at their offshore units in Hong Kong over the past three years, according to three people familiar with the matter.
While global banks have supported recovery teams for several years, in-house distressed debt teams is a new area of business for many of the Chinese banks in Hong Kong.
The hiring spree, aimed at building out formidable teams, has seen Chinese lenders poach restructuring specialists from global banks, one of the people said.
Chinese banks have strong loan-recovery teams within China but such operations outside of the country were deemed unnecessary until recent years, when the institutions began rapidly expanding their corporate finance businesses in Hong Kong.
Now, in the wake of an overseas deal binge by Chinese groups, followed by a number of defaults and failed buyouts, China’s banks are seeking to better manage how they recover and restructure their loans outside the country.
“This comes from an increasing recognition of the need to focus on how best to manage their balance sheets as loan defaults continue to increase,” said Ian Chapman, a partner at Allen & Overy’s restructuring and recovery group in Hong Kong.
“We foresee a return to a bank-managed restructuring and recovery process and, because of this, the major Chinese banks have started to build out their workout functions,” he added. “We’ve been focused on the Chinese banks for the past few years anticipating this trend.”
One person close to the matter said the building of restructuring teams in Hong Kong was a sign that the offshore businesses of the Chinese banks have grown more sophisticated, mirroring how global banks have operated in the region.
Chinese companies became net sellers of global assets for the first time last month, selling off about $40bn in overseas assets as of mid-September while acquiring just $35bn of overseas assets this year, data from Dealogic showed.
A number of asset sales by Chinese companies have been connected to defaults both in China and on offshore loans.
One company, Zhonghong Zhuoye, has been forced to sell several foreign companies it bought in recent years after a default in China. Sanpower, a conglomerate facing a heavy debt load in China, sold off UK department store House of Fraser last year after purchasing it in 2014.
Chinese companies have been linked to several big restructuring efforts in the region in recent years.
China-backed commodities trader Noble Group, for example, required a $3.5bn restructuring that dragged on for several years.