To date, only a small number of the largest investment houses have managed to compete successfully, although a changing economic climate in China may work to the advantage of offshore investors going forward.
The cultural implications of investing in China should not be underestimated. Outside of the principal cities, the number of parties that can be potentially involved in the workout of credits can be significant and include unexpected third parties such as local mayors, landlords and local officials. Additionally, the States drive to avoid any sense of civil unrest can be an unfamiliar dynamic to non-Chinese investors looking to restructure credits and businesses. The key to successful investment in China, more than anywhere, is likely to turn upon access to an established and experienced domestic servicer to deal with all the issues that can arise.
“In China, one of the greatest challenges is finding a book of NPLs that are serviceable, backed by assets in a decent area of jurisdiction like a tier 1 or tier 2 city, at enough of a discount to generate the returns investors are looking for. Some of the more premium NPLs are still priced very high, which starts to impinge upon returns and profitability for offshore and local investors alike”
India: Coming into focus
By the end of 2017, Indias NPL ratio had reached a new high of 9.97%. As per the data compiled by the Insolvency and Bankruptcy Board of India (IBBI), creditors in India have recovered approximately 56% of their admitted claims from 32 stressed debtors after the approval of the insolvency resolution plans as at .
There is now an increasing focus on Indias NPL market thanks to the countrys bankruptcy reforms which overhauled the previous fragmented and poorly structured insolvency laws. The new Insolvency and Bankruptcy Code (IBC) aims to facilitate investment activity in India by increasing certainty of legal recourse under a single unified corporate insolvency frameworkmentators widely credit it with bringing a legal structure with well-defined processes, responsibilities and timelines to distressed asset resolution.
The Reserve Bank of India (RBI) now also has the power to direct banks to initiate insolvency resolution proceedings against borrowers, which is a welcome step to help resolve a distressed asset regime. These developments have contributed significantly to increased bank recoveries the IBBI states that banks are now recovering approximately 55% of their claims.
According to a statement by then-Finance Minister Piyush Goyal in the Indian Parliament, State-backed lenders held more than 86% of those loans
Although India now has a robust insolvency resolution mechanism, there do remain certain key issues which can frustrate NPL resolution processes. These include interference by promoters and parties related to the corporate debtor at various stages during insolvency resolution who may try to stall or regain control of the corporate debtor. However, the Indian Legislature has been prompt in recognising such issues and has been addressing the how many installment loans can you get in Arizona? concerns of stakeholders through amendments to the IBC and its related regulations.
To further tackle the rise of NPLs, the RBI has issued a revised framework for the resolution of stressed assets in 2018 to scheduled commercial banks and to financial institutions in India. The revised framework imposes the requirement of early identification and reporting of stress, implementation of resolution plans under the IBC, Prudential Norms, supervisory reviews and disclosures.
As reported by Moodys, the new rules will prevent a build-up of problem loans in the system and help improve banks ability to deal with NPLs in on-going resolution proceedings and limit risks to their profitability.