24 August 2019
Would you like some bad debt with your handbag? Perhaps from the factory that made the product? Photo: AFP
Would you like some bad debt with your handbag? Perhaps from the factory that made the product? Photo: AFP

Bad loans now available on Taobao

Taobao, Alibaba Group’s flagship e-commerce website, is diversifying its online offerings – trinkets and household goods have now been joined by bad loans from factories.

China Cinda Asset Management Co. Ltd. (01359.HK), a state-owned bad-loan bank, sold two unpaid debts this week on Taobao’s new auction platform, launched last month.

The deals, while small, highlight how the marriage of technology and finance offers new avenues for dealing with what economists expect will be a rising tide of loan delinquencies as the country’s economic growth slows, the Financial Times reported.

Founded in the 1990s to buy unpaid debts from China Construction Bank Corp. (00939.HK), Cinda now snaps up distressed assets from financial institutions, property developers and industrial firms.

Cinda auctioned off on Taobao debts owed by two factories in Zhejiang province.

A debt from a steel mill sold for 20 million yuan (US$3.2 million), and another from a factory producing brooms, candles and other goods sold for 4.4 million.

“In the future we have a lot of this kind of debt that we plan to sell on Taobao. We were inspired when we saw courts disposing of assets this way. People are already used to this format,” the newspaper quoted Li Xiaoguang, who managed the Cinda sale for Taobao, as saying.

The face value of the debts was not clear from the listings, which included photos of factory buildings and documents describing the collateral underlying the debts.

The advertising suggested that bidders were essentially buying rights to land, buildings and equipment, with little expectation that they could recover cash from debtors.

Li said the winning bidders for both debts were individuals, not financial institutions, and both the debtor firms are privately owned.

Analysts say Cinda and its three other state-backed peers play a key role in taking bad loans off the balance sheets of commercial banks.

Their role in buying bad loans helps explain why China’s official bad-loan ratio — which only counts assets on bank balance sheets — has remained relatively low at 1.25 per cent amid signs of corporate distress as economic growth decelerates, the report said.

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