Caixin
Feb 19, 2020 05:10 AM
FINANCE

Oaktree Capital Sets Up First Wholly Foreign-Owned Bad-Loan Unit in China

At the end of 2019, Chinese banks sat on $345 billion of bad loans. Photo: VCG
At the end of 2019, Chinese banks sat on $345 billion of bad loans. Photo: VCG

Oaktree Capital Management, a Los Angeles-based distressed debt manager, became the first foreign company to set up a wholly owned unit in China under a trade accord with the U.S.

The move sets up Oaktree to expand its $6.5 billion footprint in China’s vast bad-debt market as corporate defaults mount. At the end of 2019, Chinese banks sat on 2.41 trillion yuan ($345 billion) of bad loans, or 1.86% of outstanding loans, government data showed. China’s four state-owned asset-management giants resolved roughly $70 billion of nonperforming loans last year, according to PricewaterhouseCoopers.

Global vulture investors are eyeing opportunities in China as a rising number of companies struggle with defaults after years of debt-fueled business expansion. Corporate defaults across the country spiked to about $18.6 billion in 2019, up from a record $17.44 billion in 2018, according to Bloomberg data.

Oaktree Capital completed registration of Oaktree (Beijing) Investment Management Co. Feb. 14, according to a statement (link in Chinese) from Beijing’s financial regulatory department. With registered capital of $4.55 million, the Beijing-based company will engage in investment management, consultancy and asset management, according to public information. 

Meng Yuanyuan, vice president of Oaktree Capital, is the legal representative of the Beijing unit. 

Under a phase-one trade accord with the U.S., China agreed to allow American asset managers to apply for licenses to buy nonperforming loans directly from Chinese banks. Previously, foreign asset managers could buy Chinese distressed assets only through local bad loan companies.

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Speculation that Oaktree Capital would become the first foreign company to win an asset management license rose shortly after the signing of the trade deal in January. People close to the matter told Caixin that the company is waiting for the license.

Established in 1995, Oaktree Capital is one of the world’s largest bad-asset managers with $120 billion under management. Its business range has expanded into private equity, real estate and stock market investments.

Oaktree Capital opened offices in Beijing, Shanghai and Hong Kong in 2007. It provides investment consulting for about 40 Chinese clients. In 2013, the company became one of six global financial institutions that won eligibility for a project known as Qualified Domestic Limited Partner, which allows foreign managers to raise money in China for offshore investment.

Oaktree Capital started tapping China’s nonperforming loan market in 2015 and has acquired eight bad asset packages in the country. According to the Beijing financial department statement, Oaktree Capital has invested $6.5 billion in China’s distressed debt market.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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