Acquisition and disposal of non-performing financial assets

With the completion of the restructuring and listing of the five large state-owned banks, the non-performing financial assets that arose before their restructuring were acquired by the four large state-owned financial asset management companies, thereby removing them from the state-owned banks. After acquiring the non-performing assets, the state-owned financial asset management companies disposed of them through such means as debt for equity swaps, establishment of joint venture companies, asset securitization and bundling and selling overseas. The series of policy revisions effected in respect of non-performing financial assets by the National Development and Reform Commission, State Administration of Foreign Exchange (SAFE) and Supreme People’s Court from 2007 to the present will have an impact on the transaction models whereby foreign investors acquire non-performing financial assets in future.

Transfers to foreign parties

Foreign investors are required to carry out recordal in accordance with the National Development and Reform Commission and the State Administration of Foreign Exchange on Regulating the Administration of the Recordal of the Transfer by Domestic Financial Institutions of Non-performing Assets to Foreign Parties Notice and the State Administration of Foreign Exchange on Exchange Control Issues Relevant to the Use by Financial Asset Management Companies of Foreign Funds to Dispose of Non-Performing Assets Notice.

Furthermore, on 25 March 2011, the SAFE issued the State Administration of Foreign Exchange on Issues Relevant to the Administration of the Recordal of Security Provided in Connection with the Transfer of Non-Performing Assets by Financial Asset Management Companies Notice (Hui Fa [2011] No. 13), which specifies that under such transactions the security provided by domestic guarantors to foreign investors for domestic debtors in connection with transfers of claims does not fall under the administration of security provided to foreign parties.

Leo Wang is a partner of Concord & Partners

Suite 1930, Beijing Sunflower Tower, 37 Maizidian Street, Chaoyang District, Beijing
Postal code: 100026

 

Tel: +86 10 85276468
Fax: +86 10 85275038

E-mail:
leo.wang@concord-lawyers.com

 

www.concord-lawyers.com