Lone Star Shuts Beijing Office
Lone Star Funds, a US private equity firm specializing
in the purchase and resale of non-performing loans (NPLs),
has shut its Beijing office. Since four asset management
companies were set up in China to dispose of more than
US$500 billion in NPLs, only one deal, worth 12.8 billion
yuan has successfully closed.
The decision to shut the Beijing office was made in the
company's Dallas headquarters. Some observers speculate
that this move will lead to other companies' departures
from China.
While China's state-owned banks are now re-organizing
into joint-share
companies, the issue of NPLs has been a hot potato
because of its strong political overtones. Every NPL deal
has to be approved by a large number of government bureaucracies,
any of which has effective veto power over the deal. In
addition, the Chinese government has rules which prevent
the sale of state-owned assets at less than "market"
prices, which have never been clearly defined. These laws
were set up to prevent the pilfering of state-owned assets
which took place in Russia in the nineties, and led to
the rise of the "new oligarchs".
China also currently lacks a bankruptcy law. News reports
in the Chinese media suggest that this will come out soon.
China's financial sector is in a suspended state of animation.
While the Chinese banks are now joint-share companies,
they have not yet started acting like banks in a free
market economy. So far, they do not have independent boards
and their own management. And, foreign investment banks,
with the exception of the Goldman
Sachs - Lenovo joint venture, will not be able to
do business in China until December 2006.
For companies with their headquarters outside China,
this looks like a hopeless situation.
But, for some nimble marginal players who choose to ride
out the storm, this will present an opportunity as their
competition leaves the market to them.
Chinese markets have a habit of opening after the major
players have left the field.
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