[ET Net News Agency, 18 February 2020] China's major distressed asset management
companies (D-AMCs) are increasingly returning to their core competencies. That means a
sharper focus on resolving problem loans and assisting troubled companies, S&P Global
Ratings said in a report published today, titled, "More Distress, Less Dominance For
China's D-AMCs."
"We expect a refocus on distress to help stabilize the leverage for China's D-AMCs.
However, margins will be thinner, and asset growth will slow," said S&P's credit analyst
Phyllis Liu.
By S&P's estimates, the "big four" state-owned D-AMCs will maintain high-single-digit
asset growth over the next one to two years, in contrast to previous years of rapid
expansion, including overseas forays. Asset growth began slowing in 2017 in response to
tightened regulatory supervision, including new capital requirements in 2018. Regulators
also gave guidance for the D-AMCs to "return to their core business."
The agency believes the major distressed asset managers will continue to play a very
important role to policymakers, by acting as financial stabilizers in times of market
volatility. For example, two of the D-AMCs participated in last year's plan to stabilize
the troubled regional Bank of Jinzhou Ltd., by purchasing shares in the bank.
A continued very important policy role supports the ratings on the big-four distressed
asset managers: China Huarong Asset Management Co. Ltd. (02799), China Cinda Asset
Management Co. Ltd. (01359), China Orient Asset Management Co. Ltd., and China Great Wall
Asset Management Co. Ltd.
However, in terms of distressed-asset management, the D-AMCs' role is set to gradually
diminish as other players, and new recovery options, widen the field. Local asset
management companies (AMCs) and bank investment arms are entering the market after changes
in regulatory frameworks.
Moreover, these days banks have more options for resolving or disposing of problem
loans. These competitive pressures will contribute to likely thinning profitability, along
with shifts away from loan-like assets that provided the D-AMCs good fees, but strayed
from the distressed-asset mandate.
"The big-four D-AMCs still dominate the traditional distressed asset industry with more
than 90% market share, but we expect this to trend lower, ranging from 80%-90% over the
next two to three years," said Liu. (KL)