New | China's finance ministry grants 'bad bank' licences for non-financial distressed assets
Legal framework and parameters for company assets the AMCs can buy seen as poorly defined
The Ministry of Finance has granted "bad bank" licences to three asset management companies to invest in non-financial distressed assets, further opening up the distressed assets market in China.
Huarong, China Orient and China Great Wall will now be able to buy bad debts from companies directly. Previously, they could only do so from banks.
The move comes after the People's Bank of China's reiterated on Tuesday its commitment to improve the means of financing and lowering financing costs.
"The move is positive for re-liquefying the system by allowing companies to unload bad assets at market prices instead of having them stuck on their balance sheets as 'dead capital'," said Chi Lo, senior economist, greater China, at BNP Paribas Investment Partners.
"But for the scheme to function effectively, China needs to improve its credit risk assessment and rating system, and develop a market for trading bad assets to enable the price-discovery mechanism to function properly," he said.
Unlike the market for distressed assets at banks, the market for corporate assets may be a brave new world.
The legal framework for asset managers' ambit of activity and the parameters for company assets they can purchase are poorly defined.
