China to approve new foreign fund managers for QDLP scheme

21-Apr-2015 14:18:48

BEIJING, April 21 (Reuters) - Five foreign fund and private equity managers are set to gain approvals to enter a pilot scheme aimed at opening China to the $2 trillion-plus global hedge fund industry.

The firms, which include UBS Global Asset Management and Deutsche Asset & Wealth Management, received the go-ahead in February to establish local firms to raise yuan from wealthy and institutional investors to spend on alternative assets overseas, said sources with direct knowledge of the matter.

Nomura Asset Management, EJF Capital and CBRE Global Investors are also in the new round of the Shanghai-based Qualified Domestic Limited Partner (QDLP) programme.

The firms, which are expected to be granted foreign exchange quotas of $100 million, are likely to start operations by June.

The new licences represent the latest move by the Chinese government to lift restrictions on its currency and expand the use of its $3.73 trillion foreign reserves. QDLP, which was launched in 2013, allows global fund managers to bring together domestic investors in limited partnerships that buy offshore alternative assets.

The programme is "an effective new initiative that allows asset management firms to help domestic professional investors to access more asset classes overseas," said Ling Xinyuan, managing director and chairman of China at UBS Global Asset Management.

Asset managers will file to receive additional foreign exchange if they completely use the $100 million initial quota.

An official at the Shanghai Municipal Office of Financial Services confirmed companies submitted their applications in January and were granted unofficial approval in February.

"As the (QDLP) programme progresses successfully and the system matures, we will continue to move forward to expand asset classes," said the official, who spoke on condition of anonymity.Nomura declined to comment. EJF Capital and CBRE Global could not be reached for comment.

In the first round of the Shanghai-based QDLP scheme, only six hedge fund managers, which included U.S.-based Och-Ziff Capital Management Group LLC, Citadel LLC, and UK-based Man Group Plc, received a quota of $50 million each.

Big Chinese institutions, including China's largest lender, Industrial and Commercial Bank of China Ltd 601398.SS 1398.HK, and CITIC Trust Co CITIHT.UL have invested in QDLP funds managed by Man Group.

A similar scheme, called Qualified Domestic Investment Enterprise (QDIE), was launched last year in Shenzhen.

Prior to QDLP and QDIE, Chinese investors were not allowed to invest in offshore securities markets unless via the Qualified Domestic Institutional Investors programme, which is however tailored to the needs of retail investors.

(Reporting by Matthew Miller and Beijing Newsroom; Editing by Jacqueline Wong) 

Bonds of China developer Kaisa fall after landmark default 

By Umesh Desai

HONG KONG, April 21 (Reuters) - Bonds of troubled Chinese developer Kaisa Group slipped on Tuesday in volatile trade after a landmark default on its coupon payment unnerved investors and highlighted the risks of investing in the country's property sector.

The borrower said late on Monday it had failed to pay a coupon on its bonds due 2017 and 2018 within the grace period, becoming the first Chinese developer to default on its dollar bonds

China's property sector makes up 15 percent of its GDP and was the source of 61 percent of high-yield dollar bonds issued by Asian companies, excluding Japan and Australia, in 2014, according to Thomson Reuters data.

In volatile trade on Tuesday, Kaisa bonds fell as much as 10 points before rebounding.

The default was expected following a restructuring proposal under which Kaisa's coupon would be halved and interest payable in cash only after 2017.

There's still uncertainty about Kaisa's financials, with its earnings release delayed beyond the scheduled date.

Kaisa's cash balance fell to 1.9 billion yuan on March 2 from 10.9 billion in mid-2014, and debt more than doubled to 65 billion yuan at the end of 2014 from June. The company is expected to report a loss for 2014.

Mitsubishi UFJ Securities analyst Guo Rui is concerned as to how "the company and its auditors would explain a potential huge divergence between the interim and annual results".

He said Chinese media reports had implied Kaisa had incurred a second half loss of over 5 billion yuan, a sharp downturn from the 1.3 billion profit in the first half. An email to Kaisa seeking comment was unanswered.Analysts also worry about an apparent clash between Kaisa and the management of larger peer Sunac, which has proposed to buy Kaisa for $385 million.

Last week, Kaisa reinstated its founding chairman months after he stepped down and fired three staff members appointed from Sunac, fuelling speculations the takeover would not go through. "The likelihood of Sunac completing its investment has somewhat diminished, if not disappeared," said Lucror Analytics in a note which estimated the restructuring proposal valued the bonds at around 50 cents on the dollar. "We estimate that, absent the appearance of a white knight, USD bondholders could now be looking at a recovery of less than 10 cents in the dollar," Lucror said.

(Reporting by Umesh Desai, Editing by Anne Marie Roantree & Shri Navaratnam)

China overhauling IPO process, mulls foreign firms listing - report

SHANGHAI, April 21 (Reuters) - China will switch to a "registration system" for initial public offerings (IPO), ending the current approval process, the official China Securities Journal reported on Tuesday, a day after parliament began reviewing draft changes to the Securities Law.

A registration system - used in mature markets such as the United States, where the market decides who gets to list, when, and for how much - will obviate the China Securities Regulatory Commission's (CSRC) role as the approval agency, industry sources say, and leave companies to register with stock exchanges to float shares.

"The promulgation of the share issue registration system will focus on information disclosure and thus enable market participants themselves to judge the issuers' quality of assets and investment value," the newspaper quoted Wu Xiaoling, a lawmaker at the National People's Congress (NPC), China's parliament, as saying.

"It will move towards allowing the market to play a decisive role in asset allocation."

Investors hope the changes will address multiple problems, notably the possibilities for corruption in a system that requires official sign-off, share price spikes on launch days, and companies quequing for years to list.

Chinese regulators have historically closely managed the pace of IPO issuances, given their tendency to drag down the market if they come too close together, draining net liquidity.

As a result, the CSRC has often seen fit to freeze IPOs during market slides; in late 2012 it froze IPOs for over a year. Now that markets are rallying strongly, however, there is more liquidity available in the market than new issuers and secondary issuers can tap.

FOREIGN FIRMS

The draft also stipulated requirements for share issuance by foreign companies in China, the newspaper said, without going into details. The move would be a step toward creating an "international board", which China has said it would launch eventually.

Other proposed changes included allowing professionals in the securities industry to trade stocks themselves for the first time, the report said.

Requirements for companies to show profit and earnings sustainability would be dropped, but corporate executives would need clean criminal records for the previous three years, and companies' financial reports should not have been rejected by qualified accounting firms during that time, the newspaper said.

The amendments will also add provisions enforcing compulsory corporate cash dividend distribution as part of official efforts to protect the interest of ordinary investors, it said.

(Reporting by Lu Jianxin and Pete Sweeney; Editing by Simon Cameron-Moore)