Goldman, Warburg Pincus and others nearing $2bln Huarong deal-sources
Comment of the Day

July 23 2014

Commentary by Eoin Treacy

Goldman, Warburg Pincus and others nearing $2bln Huarong deal-sources

This article from Reuters may be of interest to subscribers. Here is a section: ‘

The seven investors are likely to sign an agreement over the next month, the people said.
China Huarong had about $65.7 billion under management at the end 2013, making it the nation's biggest bad debt manager ahead of China Cinda Asset Management Co Ltd, which raised $2.8 billion in a Hong Kong initial public offering last year.

CICC, Fosun, Goldman Sachs and Warburg Pincus declined to comment. COFCO, CITIC and Khazanah did not immediately respond to calls and emails seeking comments. The sources declined to be identified as the information is not public.


Eoin Treacy's view

China’s bad banks were created 15 years ago to deal with the contagion the economy experienced in the aftermath of the Asian financial crisis. The fact they are now seeking listings suggests that they wish to capitalise on the appreciation in the assets they hold. Another perspective is that they are following a growing trend of Chinese banks seeking listings as they raise capital offshore to help bolster their balance sheets as the housing market cools.  

Nevertheless, when we contrast the racey valuations put on a number of high profile US IPOs in the last year, the prices put on China’s bank listings are considerably cheaper. China Cinda Asset Management (Est P/E 9.99) hit a medium-term low in May and has held a progression of incrementally higher reaction lows since. Some consolidation appears to be underway but a sustained move below HK$3.80 would be required to question medium-term scope for continued higher to lateral ranging. 

The Hang Seng H-Financials Index (P/E 6, DY 4%) is comprised of Chinese banks listed in Hong Kong. It found support in March above the 2013 lows and continues to hold a progression of higher reaction lows. A sustained move below 14,000 would be required to question medium-term scope for a continued rally towards the upper side of the three-year base. 


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