Newspaper article International New York Times

Buyers Rush to Cash in on China's Pile of Bad Debt

Newspaper article International New York Times

Buyers Rush to Cash in on China's Pile of Bad Debt

Article excerpt

A huge bet on China's bad debt shows a shifting approach of Hong Kong investors.

The hottest deal among investors in Hong Kong this year is a huge bet that a slowdown of the Chinese economy will create a new wave of bad debt.

On Thursday, China Cinda Asset Management, one of the biggest "bad banks" set up by the Chinese government to absorb deadbeat loans from the financial system, raised about $2.5 billion in a Hong Kong share sale, according to three people familiar with the deal.

Cinda's initial public offering is the biggest in Hong Kong this year. The deal was priced at the top of the marketed range after receiving exceptional demand from big overseas funds and individual local investors, the people said, declining to be identified because the information was not public.

In the 20 years that have passed since Tsingtao Brewery became the first Chinese company to list shares directly on Hong Kong's stock exchange, the sales pitch to foreign investors in the hundreds of Chinese I.P.O.s that have followed has almost always been some variation on this: "It's a chance to buy into China's booming growth story."

Now, as it becomes clearer that China's decades of double-digit growth are a thing of the past and that the government under President Xi Jinping is serious about accepting some short-term economic pain for the sake of better balanced and more sustainable growth, investors are having to make significant shifts in their approach to China.

A crackdown on conspicuous consumption among government officials? Dump shares in producers of rice wine -- the stock of the Kweichow Moutai Company, for example, is down 35 percent this year.

Demographic shifts mean the population is graying fast? Buy shares in Fu Shou Yuan International, a fast-growing Shanghai company hoping to list in Hong Kong this month, according to a preliminary term sheet for the deal. Fu Shou Yuan, meaning "Garden of Prosperous Longevity," is one of China's biggest operators of cemeteries and providers of funerary services.

The country is on the verge of a new wave of bad debts after five years of unprecedented growth in lending? …

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