The other face of distressed debt in China

Small scale and company centred, investing in a distressed company can reap rewards.

So far, the approach to non-performing loans in China has been the one adopted by the US investment banks, with Goldman Sachs, Morgan Stanley, and most recently Citigoup, among the keenest to buy discounted assets. That involves buying up billions of dollars of distressed debt from asset management companies and state owned banks for less than 20 cents on the dollar. The corollary is usually the break up and disposal of the bankrupt companies to recover the debt.

But David Mahon, a New Zealander and MD of private equity firm Mahon China Investment, believes a different approach reaps better shareholder returns. He explains why.

The US investment banks have a difficult...

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