Distressed Corporate Debt Up For Grabs At Taobao

Chinese eCommerce platform Taobao is letting online shoppers purchase distressed debt from corporates that have defaulted on their loan repayments.

Reports this week surfaced that one Chinese steelmaker is selling its debt after failing to pay back a loan of 9.95 million yuan (about $1.45 million), including interest. China Cinda Asset Management Co., which is marketing the debt, said in June that it is working with Alibaba to create a new space on Taobao to auction the debts.

There have been other listings, too, including of a portfolio of 118 nonperforming loans from several companies.

According to PricewaterhouseCoopers, dozens of websites emerged in the first half of 2016 to market their services to banks and sellers of nonperforming corporate loans in China.

“Financial technology and eCommerce in China has reached a high level of sophistication,” said Banco Bilboo Vizcaya Argentina SA chief Asia economist Xia Le in an interview with Bloomberg. “Online platforms are leveling the playing field in the distressed debt market as it means everybody can get access to the same information.”

But there are concerns that those acquiring the bad debt may not be appropriate for all investors.

“The online auction sites open the marketplace up to potential buyers that may not be as diligent in the required analysis that we deem appropriate to price a portfolio,” said ShoreVest Capital Partners partner Andrew Brown, who specializes in macro and strategy for its Hong Kong operations. “If you are developing a platform for NPL portfolios, the question is does it allow for appropriate time and access to do the research? It’s not like buying and selling stocks.”

China has experienced a spike in bad corporate debts in recent years, a result of accelerated economic evolution, reports said. That’s forced some players in the economy to get creative on how to deal with it.

Last year the International Monetary Fund raised concerns over bad corporate debt levels in the country, while analysts calculated nearly three times the number of defaults in 2016 compared with 2015. Analysts raised concerns over a “banking crisis” that could result from the estimated 150 percent of Chinese GDP that bad corporate debt is now worth.

China’s central bank prepared new rules last year, too, to tackle the issue, with plans to let lenders swap outstanding NPLs for stakes in the companies they financed.

“Such a rule change shows banks’ bad loans have risen to such a level that this issue has to be tackled now before it’s too late,” said Shanshan Finance Head of Equity Trading Wu Kan to Reuters at the time.