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The China Construction Bank's (CCB) pioneering auction of settled assets is proceeding well and will likely be a success, said accounting firm Ernst & Young, the financial adviser executing the deal.
The quality of the assets being offered, the quality of registered bidders - many of which are the world's largest banks - their strong interest, as well as the way the auction is being organized, are all positive signs the deal will be a success, it said.
"The proceedings are going very well," said Jack R. Rodman, partner and managing director of Ernst & Young, Transaction Advisory Services. "I'm very confident it's going to be successful."
"It's been structured to be successful."
Rodman dismissed some media reports on Monday saying the sale - with a face value of 4.19 billion yuan (US$508 million) - was forcibly delayed and "has become mired in uncertainty as potential bidders have found parts of the portfolio void of titles."
"That's not true," he told China Daily in an interview.
The major reason the bank and E&Y had originally scheduled the bid date before the May 1 holiday - April 21, or yesterday - was due to a rumor there was going to be another transaction by another Chinese bank in the market.
"But they never announced it. So to provide our investors more time to perform due diligence and organize site visits... we delayed now until after the golden week," Rodman said.
The bid date has been set for May 19.
This week and last, E&Y organized site visits for investors to inspect the properties to be sold, most of which are land and buildings scattered across China. It had meetings with lawyers last week to work out legal documents.
It takes some time, though, Rodman said, to help the investors, many of which are buying settled assets in China for the first time, understand that it is not uncommon in China for sellers to transfer their interest in assets without obtaining title.
The uncertainty of obtaining and transferring title matters on the portfolio does pose a risk to investors, which the bank hopes to mitigate by providing warranties and representations where they feel that the buyers' ability to obtain title is highly probable, but such risks are normal risks distressed asset investors accept and factor into their purchase price and risk assessment, he explained.
The CCB now owns registered title on 28 percent of the portfolio, and has a court judgment, which orders the borrower to transfer title to the bank, for another 27 percent.
"Our understanding is that judgement is the supreme document. It's been judged, it's been reported," Rodman said, adding the reason the bank has not taken title is that, in many instances, it needs to make significant expenditures of time and money to actually transfer the title.
Borrowers have signed binding agreements with the bank for the remaining 45 percent of the portfolio, which E&Y believes are valid and will give the buyer a right to receive title in accordance with the terms of the settlement agreement, Rodman said.
E&Y expects to issue the relevant legal documents by the end of this week for the CCB to approve the final legal agreements.
"So we think we are on track, we think the investors are enthusiastic, they are inspecting the assets this week, the legal documents are being finalized and we are very confident that we will receive good bids," Rodman said.
Fourteen international investors, including Citibank, Goldman Sachs, UBS, and one Chinese company, have registered for the bid, which he said is a good number for an auction of settled assets that once backed loans.
Hopefully, eight to 10 of them will actually bid, Rodman estimated.
(China Daily April 22, 2004)
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