{"text":[[{"start":8.39,"text":"This article only represents the author's own views."}],[{"start":12.780000000000001,"text":"Growing stress among Chinese borrowers is creating potentially lucrative opportunities for private sector investors. Aiming to make money from the nation’s growing bad debt, China Renaissance Holdings Ltd. (1911.HK) is among those trying their luck in a new role as bill collectors. But bad debt recovery is no easy feat, and China Renaissance, itself still recovering from a scandal that plunged it into chaos two years ago, may need a lot of luck to make good out of bad in its latest endeavor."}],[{"start":49.61,"text":"Last Wednesday, the company said it will pay 308 million yuan ($44 million) for two portfolios of nonperforming personal loans from Fuzhou Qifu Financing Guarantee and Fuzhou Qifu Online Microcredit, subsidiaries of private online loan facilitator Qfin Holdings (QFIN.US; 3660.HK). Fuzhou Qifu Financing Guarantee provides payment guarantee services for Qfin’s lending partners, while Fuzhou Qifu Online Microcredit directly underwrites loans."}],[{"start":89.78999999999999,"text":"https://www1.hkexnews.hk/listedco/listconews/sehk/2025/1231/2025123102417.pdf"}],[{"start":108.47,"text":"The biggest appeal of bad debt investments is that returns can be juicy, as they are often sold by original lenders at deep discounts to their face values. China Renaissance is paying just 277 million yuan for loans worth 6.7 billion yuan in principal value from Fuzhou Qifu Financing Guarantee, and 31 million yuan for debt totaling 752 million yuan from Fuzhou Qifu Online Microcredit. Given the heavy discounts, the upside for potential profits is massive."}],[{"start":146.32,"text":"“The acquisitions represent a good opportunity for the group, as the market continues to recover, the group expects the recovery of relevant debts will improve over time, and the group is confident that a significant portion of the debts are able to be recovered over time, which is expected to result in attractive rate of investment returns to the group,” China Renaissance said."}],[{"start":170.29999999999998,"text":"But the buyers of bad loans make money only if they recover the funds. And that’s a big “if,” as getting money back from distressed borrowers is tough, even for seasoned bill collectors, not to mention for inexperienced ones like China Renaissance."}],[{"start":188.52999999999997,"text":"The sour loans that the company is buying are long overdue, which makes their recoverability look difficult. The loans from Fuzhou Qifu Financing Guarantee are overdue by an average of more than two years, and those from Fuzhou Qifu Online Microcredit have been delinquent for an average of more than 400 days. Moreover, all of them are unsecured, meaning China Renaissance has no collateral to collect if it can’t recover the loans."}],[{"start":217.07999999999998,"text":"While the company specializes in investment banking and asset management services, it does have some experience with delinquent borrowers. For example, in 2022, China Renaissance provided a $25 million loan to an unrelated institution named Wallaby Medical Holding. The loan later became problematic, prompting China Renaissance to write it down substantially and book an impairment charge. The company settled the loan in the first half of last year, probably at a loss, after a 12-month extension of its maturity date."}],[{"start":256.11,"text":"Pile of bad loans"}],[{"start":258.46000000000004,"text":"But dealing with just a handful of borrowers is one thing. Going after a group of hundreds of thousands is quite another, which China Renaissance will need to do as it tries to recover some of the bad debt it’s buying. Compounding matters, the consumers who use non-bank lending companies like Qfin are often relatively risky borrowers, and those who have defaulted are the weakest within that group. So, squeezing money out of them won’t be easy."}],[{"start":289.91,"text":"The type of bad debt China Renaissance is seeking to profit from is likely to keep growing as China’s economic slowdown drags on. Although officially reported nonperforming loan (NPL) ratios are still well below alarming levels, many believe that the reported figures are artificially low as lenders find ways to delay classifying troubled loans as NPLs. Regardless of how they handle loan delinquencies, banks are under increasing pressure to clean up their balance sheets, which creates a booming market for distressed debt buyers."}],[{"start":327.6,"text":"To prevent stress among struggling state-owned firms from crippling the entire economy, China created four major asset management companies (AMCs) back in the late 1990s, tasking them with taking over NPLs from state-owned banks. Numerous regional AMCs have also been established in the last decade. But there’s too much bad debt for these state-backed institutions alone to absorb. Also, AMCs are beginning to struggle themselves because of growing impairment losses, eroding their capacity to acquire more bad loans."}],[{"start":367.44000000000005,"text":"That’s left an opening for private capital, especially for bad debt owed by non-public sector companies and individuals, which is generally not a focus for the AMCs. Foreign hedge funds and specialist distressed debt investors, such as Oaktree Capital and Bain Capital Credit, have been active in China for years. And they have been joined by domestic institutions like DCL Investments, China’s first private equity firm dedicated to distressed asset investments founded in 2015. These investors traditionally focused on business loans, banking on their expertise in valuing assets and corporate restructuring. But they have gravitated toward loans for individuals since the 2021 introduction of a pilot program that allows bulk transfers of personal NPLs."}],[{"start":420.63000000000005,"text":"China Renaissance is dabbling in distressed debt as it seeks to revive its fortunes after being rocked by the detention of its founder and chief rainmaker on suspicion of bribery in 2023. As part of its comeback efforts, the company last year also announced a plan to invest in Web 3.0, or a decentralized internet built on blockchain and crypto assets."}],[{"start":448.4800000000001,"text":"China Renaissance has been slowly clawing its way back from the 2023 crisis. Its financial performance in the first half of last year looked promising, as it returned to profitability, helped by a resurgence in Hong Kong IPOs. Its shares rose 16% in the week after announcing the bad debt investment plan, showing investors seem to like the new direction."}],[{"start":475.4600000000001,"text":"The stock now trades at a price-to-sales (P/S) ratio of 2.2, comparable to 2.5 for Hong Kong-listed shares in CICC (3908.HK; 601995.SH), generally considered China’s largest homegrown investment bank. Its ratio is also roughly double the 1.15 for Qfin, reflecting the pessimism many investors feel towards fintech lenders."}],[{"start":503.4400000000001,"text":"Investments in bad loans are generally a high-risk move. But China Renaissance is starting slowly, committing a relatively small amount of capital in this initial effort. A good return would give a nice boost to its financials, and could embolden it to try more. And even if it fails, the impact would be relatively limited."}],[{"start":536.22,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1767837921_5796.mp3"}