Bad debts selling next to groceries on Taobao

Banks, asset managers starting to use non-traditional ways to dispose of assets

BEIJING (BLOOMBERG) – Among the groceries, diapers and pet food for sale on Taobao, China’s biggest e-commerce platform, is a listing that may take up a little more space in the online shopping basket.

For 4.15 million yuan (S$845,000), customers on the site owned by e-retailing giant Alibaba Group Holding can bid for the debt of a steelmaker from Zhejiang, a coastal province in eastern China.

The company has failed to pay back a 9.95 million yuan loan, including interest, so a distressed asset manager is auctioning it off to the highest online bidder.

It is not the only bad debt for sale on Taobao, which translates roughly as “digging for treasure”.

Used by millions of Chinese to buy anything from clothes to food and electronics, the platform, known for its bargains, typically markets more than 1 billion yuan of soured assets a day, according to Bloomberg calculations.

Recent listings include a portfolio of 118 non-performing loans from some companies in Yunnan province, a villa seized by a bank in the southern canal city of Shaoxing, and a property in central Beijing that is in default.

“Financial technology and e-commerce in China have reached a high level of sophistication,” said Dr Xia Le, chief Asia economist at Banco Bilbao Vizcaya Argentaria in Hong Kong. “Online platforms are levelling the playing field in the distressed debt market as it means everybody gets access to the same information.”

China’s embrace of e-retailing is helping it tackle another by-product of the country’s rapid economic evolution: the rise of bad debt.

Slowing growth and an uptick in corporate defaults have fuelled the market, with non-performing loans at commercial banks more than doubling over the past two years to 1.6 trillion yuan as of the end of March.

As Beijing pushes lenders to find market-oriented ways of dealing with soured loans, interest in distressed debt has climbed, spurring banks and asset managers to look beyond traditional venues like auction houses and exchanges to dispose of the assets.

China Cinda Asset Management – one of the country’s biggest distressed asset managers, and the firm marketing the Zhejiang steel company’s debt – said in June that it is collaborating with Alibaba to set up a special section on Taobao to auction its wares.

Though Alibaba declined to provide data on actual sales, the advertising of such loans shows how interest in the market for China’s distressed debt is developing.

Following Taobao’s lead, more than 50 other websites marketing their services to banks and other sellers of bad loans emerged in China in the first half of last year, according to a March report from PricewaterhouseCoopers.

More than 20 financial institutions are listed as partners on Taobao’s auction platform for soured assets, including Shenzhen-based Ping An Bank, Beijing’s China Minsheng Banking and China Citic Bank Corp.

“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,” says Mr Andrew Brown, a partner for macro and strategy at ShoreVest Capital Partners.

Both Alibaba and Cinda declined to comment.

A version of this article appeared in the print edition of The Straits Times on July 12, 2017, with the headline ‘Bad debts selling next to groceries on Taobao’.

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