Bloomberg News

Silver Grant's First-Half Profit Falls 6.3 Percent

September 08, 2006

Silver Grant International (171) Industries Ltd., a Chinese bad-debt investor part-owned by Citigroup Inc. (C:US), said first-half profit fell 6.3 percent on less gain from loan disposals.

Net income decreased to HK$333 million ($43 million), or 14.8 Hong Kong cents, for the six months to June 30 from HK$355 million, or 17.3 Hong Kong cents, a year earlier, the Hong Kong- based company said in a statement today. Revenue rose 77 percent to HK$528 million because of gains from equity investments.

Silver Grant competes with overseas investors such as Avenue Capital Group and UBS AG to buy non-performing loans from China's four state-owned bad-debt managers, betting it can profit from a potential rise in the value of underlying assets. The profit drop came after the company failed to make any major acquisitions this year, said analyst Daisy Zhang.

``The company didn't have much opportunity to buy new loans because the four asset management companies haven't made much progress selling their NPLs,'' said Zhang, a Shanghai-based analyst at UOB Kay Hian Investment Consulting Co., before the announcement. ``Its revenue depends mainly on the Huarong portfolio it bought last year.''

China Construction Bank Gain

Silver Grant had a HK$143 million fall in revenue from its distressed business, the statement said. It sold shares in China Construction Bank bought during the initial public offer last October, generating a one-off gain of HK$369 million and offsetting most of the decline in its core operations. Stock in China's fourth-biggest lender rose 31 percent in the first half.

Silver Grant and Citigroup together bought distressed loans with a face value of 36.4 billion yuan from China Huarong Asset Management Corp. last November. The company didn't make any announcement on additional purchases after the deal.

Huarong and the other three managers -- China Cinda Asset Management Corp., China Great Wall Asset Management Corp. and China Orient Asset have bought more than 2.6 trillion yuan of loans from the nation's four biggest lenders and China Development Bank after they were set up in 1999.

Of the 1.4 trillion yuan of loans the four companies have to resolve by the end of the year, they managed to dispose of 866 billion yuan of them and recovered 181 billion yuan in cash as of March 31, according to the banking regulator.

``If the asset managers don't speed up disposals, Silver Grant's business will be further affected,'' said Zhang, who has a ``sell'' rating on the company's stock.

Cinda holds 32 percent of Silver Grant and Citigroup has an 18.5 percent stake, according to the company's 2005 annual report. The company didn't offer an interim dividend, the same as last year.

Its shares fell 3.82 percent to close at HK$2.02 today. They have lost 12 percent this year, against a 15 percent increase for the benchmark Hang Seng Index.

To contact the reporter for this story: Patricia Cheng in Hong Kong at pcheng9@bloomberg.net

To contact the editor responsible for this story: Ben Richardson in Hong Kong at brichardson8@bloomberg.net


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