Our reporter Fan Hongmin reports from Beijing

When the economic uncertainty increases, the opportunity of non-performing asset disposal industry comes quietly.

The reporter of China business daily noted that the non-performing asset allocation market has been quite active recently. The annualized return of non-performing asset allocation business in the market is more than 10%. Individual allocation institutions require the annualized return of priority funds to be 18% and the annualized return of mezzanine funds to be 30%.

According to statistics, the average annualized return of trust products famous for high returns in 2021 is less than 7%.

Behind the rate of return, a series of problems facing the capital allocation business in the non-performing asset market are also emerging.

Yields remain in double digits

“We can allocate capital at a cost of about 16 18 (i.e. the annualized rate of return is 16% to 18%). Depending on the project, the maximum residential capital can be 1:9” “seek priority capital of 160 million yuan (80% of the investment), the service life is 12 months, and the interest rate is acceptable 13% + floating income” “the company allocates non-performing assets: adopt the priority + mezzanine + inferior mode, the overall cost is 12% 15%, and the project party, as the inferior, contributes 10% ~ 20% (according to the project evaluation) ； Establish SPV and dispose of it in partnership… “

According to our reporter’s investigation, the annualized rate of return of some priority capital allocation in the market is more than 10%, and the annualized return of mezzanine capital is generally several points higher. For example, the capital allocation plan provided by a non licensed NPL disposal company in Hebei to reporters shows that the priority cost is 12% ~ 13% (according to the underlying asset type); Mezzanine cost 15% + floating income “; A company providing mezzanine capital allocation in Zhejiang requires the annual return of mezzanine capital to be 30%.

In sharp contrast to the double-digit income of non-performing asset allocation business, the average rate of return of trust products famous for high income of major asset management products in 2021 is less than 7%.

The recent research report of Huabao securities shows that the trust yield has basically remained stable and the duration has slightly lengthened: in 2021, the average yield of the published collective wealth management trust products was 6.85%, 30 BP lower than that in 2020; The average trust period is 2.62 years, an increase of 0.29 years compared with 2020.

According to public data, a total of 672 insurance asset management products disclosed net value data in 2021, including 139 stock products with an average yield of 5.46%, 113 hybrid products with an average yield of 3.86% and 420 bond products with an average yield of 5.66%.

The annual report of China’s banking financial management market (2021) released by the banking financial management registration and custody center shows that the weighted average annualized rate of return of financial products is the highest of 3.97% and the lowest of 2.29% in each month of 2021.

Active licensees

According to the view of the industry, the allocation of non-performing assets is to put the usufruct of non-performing assets to be acquired into the asset management plan, and then set up the roles of priority funds, horizontal funds (secondary) and inferior funds for fund combination, so as to form an asset management plan.

Lu Chunyang, a lawyer of Beijing deheheng law firm, introduced that there are two specific operation modes in the market: one is the capital allocation structure in an organized form, such as the establishment of a limited partnership between the fund and the resource, the trust company is entrusted to establish a trust plan, the partnership or trust plan (represented by the trust company) participates in the acquisition of non-performing assets, and carries out priority, intermediate level and The inferior level and other structured designs give priority to obtaining fixed and capped investment returns and giving priority to distribution. The inferior level is responsible for trading, bearing greater investment risks and may obtain excess returns at the same time. Another is the unorganized funding structure, which realizes the purpose of funding through agreement. That is, the resource party and the fund party sign a cooperative investment agreement to agree on the investment project, contribution amount, allocation order and trading subject, and jointly manage the corresponding funds. Then the trading body is responsible for trading. In addition, in practice, some capital allocation transactions have a bad rear (including its related parties or actual controllers) to guarantee the investment principal and fixed income of priority funds by means of commitment to minimum guarantee and commitment to acquisition, that is, the so-called minimum guarantee.

The institutions involved in the non-performing capital allocation business in the market include licensed AMC, non licensed non-performing disposal institutions and various capital parties. In addition, during the downward period of the real estate market, some institutions engaged in pre financing and allocation of real estate projects also began to transfer to non-performing asset allocation business.

“At present, like us, many former financial institutions are actively expanding the acquisition and capital allocation business of non-performing asset disposal projects, so as to improve the revenue dilemma caused by the lack of former financial business.” Xizheng capital wrote an article at the end of 2021.

It is noteworthy that licensed AMC institutions are quite active in the capital allocation market.

According to the reporter’s investigation, a licensed state-owned local AMC asset management company in the south is carrying out capital allocation business through its subsidiaries, mainly engaged in mortgaged assets. The form of collateral is unlimited, and the annual income is between 12% and 15%.

As mentioned in the China bond credit research report, local AMCs usually provide capital allocation services to private investors and other counterparties who have acquisition needs but whose funds are insufficient for one-time payment when disposing of non-performing assets. That is, the customer provides 30% of the transfer price as security deposit, and the remaining funds can be delayed for a period of 1 year, with a yield of more than 10%. The ownership of the non-performing assets package is still in the local AMC, and the disposal right is in the customer. If the customer fails to cash on schedule, the local AMC has the right to dispose of the mortgage and pledge assets of non-performing assets.

It is worth mentioning that both licensed local AMCs and non licensed non-performing asset disposal institutions provide intermediary services for some social funds to carry out non-performing asset allocation business in addition to their own capital participation.

Hidden multiple hidden dangers

A series of problems also follow behind the operation of low-income business.

Insiders pointed out that due to the influx of a large number of hot money into the non-performing asset market, blind capital allocation has also been accused by the industry of pushing up the price of non-performing assets, while high-cost capital allocation funds are easy to cause problems such as short-term and long-term investment, capital term mismatch and so on.

It is understood that at present, there are some problems about bad capital allocation