Today s China NPL Market Master Class for Investors HOT issues in seeking yield and managing and pricing risk

Transcription

1 Advisory Master Class for Investors HOT issues in seeking yield and managing and pricing risk

2 Presenters Ted Osborn Partner Victor Jong Partner +86 (21)

3 Overview of Webinar In-depth look at the critical issues facing NPL investors today Designed to take a deep dive into handful of core issues China NPL market Reflects our experience within last 6 months with current and potential NPL investors Q&A session at the end and follow up 3

4 The elevator pitch Why is the China NPL market attractive right now? Huge supply and more to come Portfolios are mostly secured by real estate which is easy underwrite, foreclose on and sell Price s are coming down and banks and AMCs are selling There are still local partners available 4

5 Who is buying? Oaktree, Blackstone, Lone Star, Bain, PAG, Goldman, etc. have jumped in Other funds big and small assessing the best way forward Many investors in varying stages of evaluation 2018 will see new faces 5

6 Investor yield requirements Consensus seems to be un-leveraged 12-15% IRR 50%-60% leverage can increase IRR to 17% - 22%+ IRRs assume 10% tax and market rate servicing fees/expenses months from acquisition to repatriation 6

7 A typical China NPL portfolio for foreign investors: US$ 100m + 1.2x 1.4x gross collection multiple ~$120m to ~$140m Loans to private companies generally small to medium enterprises Typically between loans, 2/3 secured One province portfolios Pledged real estate drives value Always some unsecured loans and loans w/ guarantees Typical portfolio pricing Estimated cash recoveries 7

8 Managing risk Choosing your local partner/servicer you want a happy marriage Bank accounts and cash repatriation Getting the recovery plan right benchmarking against results Risk in China NPL investment Portfolio selection forming a portfolio from an initial loan list Portfolio underwriting understanding what you are buying Need boots on the ground to push and monitor your people or trusted advisor 8

9 Your local partner will be the key factor as to how good your returns will be What a good local partner will bring to the table Relationships with AMCs to source portfolios, initial DD Local knowledge of courts, judges, auctioneers, businesses, asset values Knowledge of who are potential buyers of collateral Connections to help sort out problems with debtors Motivation to grow with investor Regular law firm vs. specialist law/debt collection firms Most local partners will have defined geographic expertise Building your own team why and why not? 9

10 Moving the money around key things you should know Winning the auction starts the clock days to pay is typical. Delays not uncommon but weeks not months. Hedging RMB risk ~2% Paths very clear for capital injection and repatriation. Leverage availability, terms and pricing. 10

11 Collateral foreclosures and litigation Major difference from last round higher quality collateral and good legal process Timeline to recovery more predictable litigation, asset preservation and enforcement in 24 months or less Maximizing recovery on collateral sales need to market the property! DPOs are an option, but aren t prevalent, except for guarantors 11

12 Extracting portfolio value follow the plan Execute the recovery plan that flows from detailed due diligence. Update recovery plan regularly Portfolio value Early actions asset preservation and initiation of litigation Keep your head up and eyes open stay on top of servicer 12

13 We offer end-to-end solutions to investors Project Sunshine - live deal Step 1 We identified an attractive portfolio meeting investor criteria Step 2 Conducted due diligence focused on extracting value. Step 3 Integrated strategy to achieve IRR targets. Step 4 Investor underwriting expects unlevered IRR of ~18%. 13

14 Five things to remember if you are considering investing: 1. Real estate drives recovery value and collateral is sold via court auctions likely no negotiation with debtor. 2. PRC legal process is predictable 24 months from lawsuit to enforcement to recovery. 3. Foreign investors can only own loans. Real estate collateral must be sold and cannot be taken over by investors. 4. No real nationwide servicers. Rely on law firms with dedicated NPL units who have strong relationships where the loans will recovered. 5. Domestic investors typically go after smaller portfolios competition, if any, will more likely be from another foreign investor. 14

15 Q&A Please submit your questions in the chat box. 16

16 Appendix: CVs 17

17 Our team - Ted Osborn Ted Osborn is a partner based in Hong Kong since 1995 and is the Asia Pacific leader of s Restructuring and Insolvency practice. Ted spends much of his time providing advice in relation to China NPL acquisitions, cross border debt restructurings and other special situations investment situations. In this capacity Ted also frequently acts as a receiver, liquidator, bankruptcy trustee and Estate Administrator. Ted is a frequent contributor to the Wall Street Journal and other publications, and has appeared on CNN, CNBC Bloomberg TV and Reuters providing his opinion on the China banking, NPL and distressed debt markets. Ted Osborn Partner Office: (852) Mobile: (852) t.osborn@hk.pwc.com Ted s major China NPL related experience includes: Advising over 10 funds/banks/investor groups many on multiple occasions in relation to over 30 acquisitions of China NPL portfolios between including deal structuring, loan due diligence, recovery estimation and pricing; Advising China Orient AMC in relation to its sale of various NPL portfolios; Acting as the loan servicing manager for a US investor in relation to the servicing of an RMB1.8bn NPL portfolio; Preparation of a comprehensive China NPL market study for a well known sovereign wealth fund; and Acting as an expert witness in the US in relation to the China NPL market including its origins, the evolution over time, deal structures and servicing arrangements. 18

18 Our team - Victor Jong Victor Jong Partner HK Office: (852) SH Office: 86 (21) victor.yk.jong@cn.pwc.com Victor Jong is a partner of PricewaterhouseCoopers Greater China Restructuring and Insolvency practice and is based in our Shanghai office. Victor is a member of the Chinese Institute of Certified Public Accounts, the American Institute of Certified Public Accounts and the Hong Kong Institute of Certified Public Accounts. He is an Insolvency Practitioner registered with the Official Receiver s Office in Hong Kong, and also an appointment taker on Hong Kong Official Receiver s Office Administrative Panel of Insolvency Practitioners for Court Winding-up ( Panel A ). Victor holds a Specialist Designation as a Restructuring and Insolvency Specialist from the HKICPA. Victor joined our insolvency and corporate reorganization team in Hong Kong in He transferred to our Shanghai office in 2004 to help develop the practice in the PRC. Over the years, Victor has led numerous engagements which involve taking control of business operations and implementing interim management measures, stabilising crisis situations, devising innovative strategies to maximise stakeholders interests. Victor has acted as court-appointed administrator, liquidator, receiver, and special manager in diverse industries. Victor s major recent experiences in the PRC and Hong Kong include: Advising a major foreign investor in relation to proposed acquisition of a US$3 billion (face value) NPL portfolio from a domestic bank with nation-wide network. Led a team to review and analyse the loan files of the top 100 borrowers and assisted investor in coordinating with other advisors and valuing the portfolio; Advising a number of Korean investors in their acquisition of various NPL portfolios in Dalian, Chengdu and Chongqing; Advising a consortium of investors in relation to proposed acquisition of a multi-billion dollar NPL portfolio from a branch of a Chinese bank in Cayman Islands; Advising a major US investor to successfully acquire a RMB900 million (face value) NPL portfolio from a Chinese AMC; Assisting a Chinese financial institution in reviewing and valuing a RMB150 billion (face value) portfolio of non-performing entrusted loan that was transferred from a major Chinese bank; and Advising an in charge of various debt restructuring, distressed investment, receivership and liquidation assignments in Hong Kong and China. 19

19 Thank you! A recording of the webcast and the presentation slides will be available for playback and download from our website after the live event. 20