Morgan Stanley sets China NPL milestone

O''Melveny & Myers partners Howard Chao and Yi Zhang explain why Morgan Stanley''s purchase of NPLs from Huarong AMC represents a milestone in the reform of the Chinese banking system. The law firm represented the investment bank in the transaction.

Recently a Morgan Stanley consortium and Goldman Sachs closed two landmark transactions in China - their respective purchases of $1.3 billion and $230 million in book value of non-performing loans NPLs from China Huarong Asset Management Corporation. This was the first successful international auction of an NPL portfolio in China. The transactions also mark the opening gun for foreign investment in China's distressed asset sector and are an important step in the reform of China's banking system.

China's NPL troubles began in the late 1980s, when the banks started to become the primary financing channel for the huge state enterprise sector. Before this, in China's central planning days, the government had been...

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