China Debt Shuffle

BLoomberg: China Toxic Debt Solution Has One Big Problem
Bank of China Ltd. sold at least half of its 301 million yuan debut offering of NPL-backed securities to other Chinese lenders on May 26, according to people familiar with the matter, who asked not to be identified because they aren’t authorized to speak publicly. Ninety-five percent of the deal’s riskiest tranche was purchased by a state-owned asset manager, a sign of tepid demand among private institutions. That same day, China Merchants Bank Co. sold at least 60 percent of a 233 million yuan NPL offering to other banks, people familiar said.

...While an initial show of support from lenders could help draw outside investors, skeptics of the program say it’s unlikely to attract widespread demand because the securities are too complex and illiquid for most of China’s non-bank institutions. A failure to purge lenders of their NPLs may fuel expectations for a government-led bailout, which Standard Chartered Plc estimates could cost as much as $1.5 trillion.

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