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Analysis of the operating status of China’s asset management companies

AMC’s asset disposal model

In the late 1990s, China’s four major state-owned commercial banks A large number of non-performing assets have been accumulated due to historical reasons, and it is difficult to achieve the expected results through decentralized disposal. Therefore, the establishment of an AMC (a specialized non-performing asset disposal agency initiated and established by the government using a centralized disposal model) to centrally dispose of non-performing assets has become a realistic option. The disposal methods of non-performing assets of the four AMCs, Cinda, Oriental, Great Wall and Huarong, mainly include: collection according to law, debt repayment with property, debt restructuring, debt-to-equity conversion, package sale, trust disposal, bankruptcy liquidation, etc.

First, debt-to-equity swap. It means that a bank or AMC transforms the original creditor-debt relationship between enterprises into a controlling (or shareholding) and controlled relationship with the enterprise. As of the end of June 2004, AMC had implemented 557 debt-for-equity swap projects with a total amount of 306.1 billion yuan. Since April 2000, it has suspended interest rates of more than 80 billion yuan. Among them, 456 new companies have been registered, with a share transfer amount of 203.7 billion yuan.

The second is to package and sell. Compared with traditional household disposal methods such as litigation, debt repayment with property, and debt restructuring, the packaged disposal method of non-performing assets has the characteristics of low disposal cost and high efficiency. AMC strives to develop both domestic and foreign markets, package and sell non-performing assets in batches, conduct online auction transactions and debt asset auction transactions, carry out international and domestic bidding disposal activities, and speed up the disposal of non-performing assets.

The third is to conduct trust disposal of non-performing assets. In June 2003, Huarong Company formed an asset package with 13.25 billion yuan of claims from 256 companies in 22 provinces and cities, and entrusted it to CITIC Trust (trustee) to establish a property trust with a term of 3 years. In accordance with the wishes of the client, CITIC Trust first established this property trust as a self-benefit trust. Huarong Company, as the sole beneficiary, obtained all (priority and subordinate) trust beneficiary rights under the trust. Huarong then transferred the priority beneficial rights it obtained to investors. The expected yield on the priority beneficial rights is 4.17%.

Fourth, foreign capital participates in the disposal of non-performing assets. In October 2001, the "Interim Provisions on Financial Asset Management Companies' Absorption of Foreign Capital to Participate in Asset Restructuring and Disposal" was promulgated, and other supporting regulations have since been promulgated. The four AMCs have cooperated with internationally renowned investment banks such as Morgan Stanley, Goldman Sachs, Citibank, and Deutsche Bank. China Construction Bank and Industrial and Commercial Bank of China have also begun attempts in this regard. As of the end of March 2005, China had approved the establishment of 10 foreign-invested asset management companies, disposing of nearly 90 billion yuan of overall debt and physical assets.

Difficulties and problems faced by AMCs

The four AMCs have been operating for more than 6 years and have achieved good results in bank financial restructuring, disposal of non-performing assets, and promotion of corporate reforms. However, Still facing many problems.

First, AMC’s legal environment is imperfect. At present, there is a lack of specific laws regarding the disposal of bank non-performing assets and AMC. Although the "Financial Asset Management Company Regulations" determine the legal status of AMCs, they are administrative regulations and have a low legal level.

Second, there is a lot of administrative intervention from local governments. At present, some local governments regard AMC's disposal of non-performing assets as an opportunity for enterprises to reduce their burdens, and continue to request AMC to increase the extent of corporate debt relief. Some local governments support or acquiesce in corporate debt evasion and interfere with AMC's asset disposal work.

Third, AMC faces many difficulties in developing its business.

There are many problems in asset evaluation. Regarding the evaluation of non-performing debt, there is a lack of unified standards in both Chinese and foreign theory and practice. The debtor's lack of cooperation makes it difficult to implement the assessment. The debtors are state agencies, public institutions, and military industrial enterprises.

There are deviations in the actual operation of debt-for-equity swaps.

The original intention of designing the debt-for-equity swap system is to enable banks and AMCs to have a greater say in the asset restructuring and operation management of enterprises through the transformation of their identities from creditors to shareholders, so as to realize the purpose of revitalizing non-performing assets. However, some assets to be converted into shares have been in asset securitization for a long time. At present, China has promulgated the "Administrative Measures for the Credit Asset Securitization Pilot" and the "Accounting Treatment Regulations for the Credit Asset Securitization Pilot", but there are still some problems. From the perspective of international practice, the credit asset securitization model (SPV) can be divided into trust type and company type. Trust type (SPT) means that the loan assets are entrusted to the trustee, and the trustee sells trust benefit certificates to the capital market based on the cash flow generated by the above assets. In the corporate type (SPC), professional loan securitization companies basically purchase credit assets from commercial banks and issue securities products to the market based on the assets. China's existing "Company Law" does not recognize the operating model of asset securitization, which makes the establishment and existence of asset securitization operating entities (SPV) lack a legal basis. At present, China's credit asset securitization pilots mainly adopt the trust (SPT) model, and the nature of claims as trust assets is not completely consistent with the nature of trust property in the "Trust Law". Therefore, there is no legal basis for using credit assets as trust assets. Asset securitization is an innovative investment and financing tool. Taxation, as the cost of investment and financing, directly affects its efficiency. If tax reductions and exemptions are not implemented, asset securitization may lose economic significance due to excessive costs.

Risk in the mixing of policy business and commercial business. With the diversification of AMC's asset sources, the contradiction between the mixed management and disposal of policy business and commercial business has become increasingly prominent. On the one hand, policy risks are relatively high, mainly manifested in:

There are many problems in the AMC management system. The unclear functional positioning of AMC makes it burdened with multiple goals. Banks are relieved of their burdens, enterprises are relieved of burdens, and financial losses are reduced. AMC is in an embarrassing position, which restricts AMC from becoming a real market entity. Although starting from April 2004, the four AMCs can carry out three businesses: investment, agency and commercial acquisitions to promote the development of their operations in a market-oriented direction, there are still conflicts between the AMC policy management system and market-oriented operations. and difficult to coordinate. The reform of AMC's property rights structure lags behind, and it is difficult to establish an effective corporate governance structure. The management system still adopts an administrative and institutional management model, and the incentive mechanism is insufficient. The market environment for AMC is imperfect. China has yet to form a unified wholesale and trading market for non-performing assets. The four companies in the primary market have a high degree of monopoly, while the secondary market has poor information circulation, low transparency, a limited number of market trading entities, few intermediaries, and a lack of trading methods and trading varieties. Problems such as this are still very prominent. The innovation of derivative products for the disposal of non-performing assets is progressing slowly and the market depth is not enough. AMC's tax burden is too heavy and various preferential policies are not in place, which affects the efficiency of non-performing asset disposal.

The future development direction of China’s asset management companies

According to IMF statistics, among the 108 cases of serious financial problems since 1980, 72 cases were caused by bank non-performing loans. Accounting for 67%; there were 41 financial crises in 31 countries, of which 24 were caused by non-performing loans, accounting for more than 50%. Therefore, the main risk that threatens the security and operation of the financial system is still the problem of non-performing loans.

Analysis of the necessity of the existence of AMC

Through restructuring and restructuring, China's state-owned commercial banks have significantly reduced the ratio of non-performing loans, but the scale of non-performing loans in the banking system is still relatively large. As of the end of September 2005, the balance of non-performing loans of all commercial banks (including state-owned commercial banks, joint-stock commercial banks, urban commercial banks, rural commercial banks and foreign-funded banks) was 1.2808 billion yuan, with a non-performing loan rate of 8.58%. Judging from the four state-owned commercial banks, after the large-scale divestiture of non-performing assets in 1999 and the financial restructuring during the reform, the ratio of non-performing loans has been declining year by year. However, the balance of non-performing loans is still as high as 1,017.5 billion yuan, and the non-performing loan ratio is 10.11 %.

In addition, the non-performing loans of state-owned commercial banks in the second quarter of 2004 and the second quarter of 2005 increased significantly. According to the second quarter statistical analysis of the China Banking Regulatory Commission in 2005, 79.43% of the non-performing loans were concentrated in state-owned banks, followed by joint-stock commercial banks accounting for 11.78%, and urban commercial banks accounting for 11.78%. Banks accounted for 8.14%, and rural commercial banks and foreign banks accounted for less than 1%.

Since 2005, the China Banking Regulatory Commission has included domestic foreign-funded banks in the statistical scope of non-performing loans, so that the gap between Chinese-funded banks and foreign-funded banks can be seen. In the first quarter of 2005, the non-performing asset ratio of state-owned commercial banks was 15%, much higher than the 4.9% of joint-stock commercial banks and the 1.2% of foreign banks.

China is in a period of economic transformation. During the process of economic structural adjustment and enterprise restructuring, financial companies and industrial and commercial enterprises will have a considerable number of non-performing assets that need to be disposed of. The high proportion of non-performing loans in the commercial banking system will be exist over a longer period of time. In addition, there are non-performing assets of policy banks, rural credit cooperatives and other institutions, as well as non-performing assets generated in the daily operations of financial institutions. After the restructuring of commercial banks, whether they can avoid large-scale non-performing assets in the future depends to a large extent on the overall quality of customers and the relationship between banks and enterprises.

AMC’s future development strategy

Regarding the development direction of China’s AMC, there are three main views in the theoretical circles: First, AMC will be disbanded after completing its established mission goals. The second is based on the financial sustainability of AMCs, those that cannot survive will be closed down, and those that can survive will be transformed into commercialization. The third is to integrate the policy businesses of the four AMCs and place them all under one AMC, making them a permanent policy institution for wholesale disposal of financial risks. The remaining three companies will choose to close or commercialize based on their financial conditions. We believe that no matter which direction it transforms or develops, AMC must first solve the following problems.

First, properly handle the issue of separation of policy business and commercial business. Generally speaking, commercial banks mainly rely on themselves to dispose of non-performing loans arising from their daily operations, or they can be disposed of in a professional manner through commercial institutions. However, banks with major problems and financial institutions on the verge of bankruptcy mainly deal with non-performing loans. Through deposit insurance institutions and other specialized institutions, public funds are used for disposal. During China's economic transition period, the problem of market exit of financial institutions occurred from time to time. The establishment of a specialized policy-based AMC can effectively reduce the moral hazard behavior of financial institutions and local governments and improve the professional level of asset disposal.

The second is to clarify the organizational structure and development direction of AMC. After completing the large-scale disposal of non-performing assets, the four AMCs need to further clarify their development directions.

First, establish a policy-based AMC. A policy-oriented AMC can be a wholly state-owned company, and establish a standardized company system in accordance with the requirements of the Company Law, establish a board of directors, and a board of supervisors system, and appoint members of the board of directors and board of supervisors by state-authorized institutions or departments; the main source of funds is public companies* ** Funds, that is, fiscal appropriations, central bank re-loans, etc.; the business goal is not to maximize profits, but to dispose of non-performing assets in a short period of time, and the final losses will be borne by the finance.

Second, establish specialized commercial institutions. Generally speaking, after the separation of AMC's policy business and commercial business, the development direction of institutions undertaking commercial business can be divided into three categories. One is an institution specializing in the disposal of non-performing assets that still maintains the function of AMC. The second is an all-round institution with investment banking functions and state-owned asset manager management functions. The third is a service provider for the disposal of non-performing assets and corporate mergers and acquisitions.

AMC can also be reorganized into an institution with investment banking functions and asset management functions. At present, the four companies manage assets worth trillions of yuan and have debt or equity interests in tens of thousands of companies; in recent years, they have opened up new business areas through custody securities companies. These constitute a large-scale and widely distributed asset pool, which is a stable business resource for AMC to carry out investment banking business. For quite some time in China, the stock and flow of non-performing assets have been relatively large. Therefore, it is necessary to establish institutions with investment banking functions and asset management functions, that is, with the acquisition, evaluation and disposal of non-performing assets, as well as investment, securities underwriting, and recommendation. Specialized institutions with functions such as listing, asset securitization, institutional custody and liquidation, asset evaluation, financial and legal consulting, etc.

This type of institution can implement joint-stock reform on the basis of the original AMC, absorb diversified entities as shareholders, and establish a limited liability company. The organizational structure of such institutions can be functional or goal-oriented.

Third, AMC disposes of non-performing assets through various channels.

Make flexible use of asset sales methods.

AMC should adopt appropriate disposal methods based on the nature of the assets and properly handle the relationship between subcontracting sales and dispersed disposals. Under normal circumstances, for projects with larger quotas, better results may be achieved by dispersing individual projects, while for some small projects, it is better to package them for centralized disposal. For the disposal of assets with value-enhancement potential, which mainly include assets with restructuring value and equity assets of most debt-for-equity swap companies, AMC should fully grasp the basic situation of non-performing assets such as regional distribution, industrial structure, and asset status, and start from breaking The overall approach to disposal shall be formulated from the perspectives of regional restrictions, the industry as a whole, and industrial development.

Explore new non-performing asset disposal models.

From the perspective of the implementation of AMC’s professional technical means, a multi-level network system for non-performing asset promotion, information disclosure and asset marketing should be established to more effectively organize and implement non-performing asset packaging and disposal, asset auctions and asset marketing Tender. With the help of modern investment banking methods, we carry out reorganization, mergers and acquisitions and replacement operations for asset groups with industry, market characteristics and asset-related characteristics, and make full use of AMC's listing recommendation, securities underwriting and financial advisory consulting methods to increase the value of non-performing assets and improve asset disposal efficiency. Relying on the capital market to develop new tools and carriers for the transfer and investment of non-performing assets, including: subcontracting; custody; sales of individual non-performing assets; batch package sales; asset-guaranteed financing auctions; establishment of joint ventures or cooperative enterprises; securitization of non-performing assets; property Trusts dispose of non-performing assets, etc.

Actively seek support from local governments.

In AMC’s past asset disposal work, it also received support from local governments in some aspects, especially debt-for-equity swap projects. Since debt-for-equity swaps are highly policy-based and involve issues such as tax incentives, fee reductions and exemptions, and personnel placement, it will be difficult to carry out the work smoothly without the cooperation and support of local governments. At the same time, it is necessary to improve AMC’s internal control system and incentive mechanism.

Properly handle losses from AMC asset disposal.

In order to dispose of non-performing assets and maintain financial stability, the governments of many countries have used large amounts of public funds to make up for disposal losses. For example, the RTC in the United States is called a company and is actually an independent government agency whose funding comes from congressional appropriations. A considerable part of the losses caused by the disposal of non-performing assets by China's four AMCs also require the use of public funds to make up for it. In order to avoid a large cumulative loss on asset disposal and ultimately a heavier financial burden, the state should clarify the solution to the problem of non-performing asset disposal losses as soon as possible. In addition, it is necessary to gradually establish a risk and return guarantee mechanism between commercial banks and AMCs, so that both parties jointly bear the gains and losses from the management and disposal of non-performing assets. In the process of AMC's commercial transformation, it can be financially restructured. First, verify AMC’s policy business assets, liabilities and disposal losses to determine the losses that the state should bear. Secondly, separate the assets, liabilities and disposal losses of AMC’s policy business. Finally, select the appropriate model to conduct financial treatment of AMC's policy business losses, including the issuance of special treasury bonds model, the Central Huijin Company model, etc.

Improve relevant supporting policies and measures.

First, improve the supervision method of AMC. AMCs are non-bank financial institutions and should be supervised by financial regulatory authorities. Considering that the current policy of AMC operations is relatively strong, and the Ministry of Finance is responsible for proposing solutions to AMC’s final losses. Therefore, we can consider strengthening and improving the regulatory system with the Ministry of Finance as the main regulatory department and the participation and cooperation of the People's Bank of China, China Banking Regulatory Commission, China Securities Regulatory Commission, and State-owned Assets Supervision and Administration Commission. After AMC becomes a commercial operating entity, the regulatory authorities can be adjusted to be dominated by the China Banking Regulatory Commission, with the participation and cooperation of the Ministry of Finance, the People's Bank of China, and the China Securities Regulatory Commission.

Another model can also be considered, which is to establish a regulatory coordination committee for the disposal of bank non-performing assets. This committee can be composed of personnel from the Ministry of Finance, the People's Bank of China, the China Banking Regulatory Commission, the China Securities Regulatory Commission, etc., and can recruit domestic and foreign experts as consultants to uniformly formulate non-performing assets. Rules for asset disposal, supervise and coordinate the disposal of non-performing assets between AMC and commercial banks.

Second, improve the legal environment of AMC. First, we must improve a series of basic laws and regulations represented by the Bankruptcy Law to protect the legitimate rights and interests of investors, lenders and other financial market participants and maintain normal market order. In addition, to further improve AMC legislation, existing laws that are difficult to adapt to market development should be revised as soon as possible to create good external conditions for the normal operation of AMC.

Third, improve the market and improve asset disposal efficiency. Based on the existing network and channels of property rights trading markets across the country, we can fully absorb the above-mentioned market entities through mergers, reorganizations, and additional functions to form a highly efficient, multi-level, and professional non-performing asset trading market. It is necessary to increase market openness, strengthen the development of market transaction tools, enrich the number and types of market participants, and promote the marketization of participant behaviors and the diversification of needs.

Fourth, the efficient operation of AMC requires the support of some preferential policies. The state may consider setting up a special credit guarantee agency through the government to provide guarantee for the credit upgrade of non-performing asset securitization. Establish a unified and efficient real estate and movable property security registration system as soon as possible. Expand the scope of collateral and introduce movable properties into mortgage guarantee practice and credit practice. It is recommended that transfer fees, appraisal fees, registration fees, land transfer fees, litigation fees, execution fees, etc. incurred during the disposal of non-performing assets should be reduced or reduced, and complete tax exemption for AMCs can be considered.

What are the business scopes of a registered asset management company?

Trusted asset management; investment management; investment consulting; equity investment; corporate asset reorganization, mergers and acquisitions and project financing; financial consulting; entrustment Management of equity investment funds; domestic trade; investment and establishment of industries. (Except for projects prohibited by laws, administrative regulations, and decisions of the State Council, restricted projects must obtain a license before they can be operated). The business scope of asset management companies:

(1) Acquisition and operation of non-performing assets in local and foreign currencies divested by financial institutions;

(2) Recovery of debts in local and foreign currencies;

(3) Leasing or transferring or restructuring the assets formed by the acquired non-performing loans in local and foreign currencies;

(4) Convert debts in local and foreign currencies into equity and hold shares in the enterprise in stages;

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(5) Listing recommendation and bond and stock underwriting of companies within the scope of asset management;

(6) Securitization of non-performing assets approved by relevant departments;

( 7) Issuance of financial bonds and borrowing from financial institutions;

(8) Financial and legal consulting, asset and project evaluation;

(9) Commercial acquisition and management based on market principles and dispose of non-performing assets of domestic financial institutions;

(10) Accept entrustment to engage in the closure and liquidation business of financial institutions approved by the financial regulatory authorities; accept entrustment from the Ministry of Finance, the People's Bank of China and state-owned banks to manage and Dispose of non-performing assets; accept entrustment from other financial institutions and enterprises to manage and dispose of non-performing assets;

(11) Use cash capital to acquire the debt-retired physical assets of non-performing loans for policy and commercial purposes under management Make necessary investments;

(12) Other business activities approved by regulatory agencies such as China Banking Regulatory Commission. Note: The above twelve items need to be approved by the China Banking Regulatory Commission;

They can be summarized as: (1) Mainly including asset acquisition, management and disposal, asset restructuring, acceptance of entrusted management and disposal of assets services, additional investment and approved

2. Management and use of own funds; entrusted or entrusted asset management business; consulting business related to asset management business; other asset management business permitted by national laws and regulations.

); No approval is required. Business scope: asset management, investment management, enterprise management

The above is the asset operation management company I provide for everyone. I hope you like it!