Alibaba Hosting Debt Auctions in China

Customers on Taobao, China’s largest e-commerce platform owned by Alibaba Group, can now bid for debt on it site. Used by millions of Chinese shoppers to buy everything from catfood and organic veggies to clothes, designer bags and electronics, the online platform is known for its competitive pricing.

Recent listings on the site, however, have included a suite of 118 non-performing loans (NPLs) in one region, the ten million yuan debt of a steelmaker based in Zhejiang, a coastal province in eastern China, a villa seized from a Chinese bank in the city of Shaoxing and a property in Beijing that’s also a default, according to Bloomberg.

Financial technology and e-commerce in China has reached a high level of sophistication, according to Xia Le, chief Asia economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. “Online platforms are leveling the playing field in the distressed debt market as it means everybody gets access to the same information,” he told Bloomberg.

China is currently experiencing an issue with NPL’s, with it currently sitting at a 12 year high – the average Taobao shopper can now get a piece of this debt. Slow growth and a rise in corporate debt and defaults has driven this. Commercial banks in China have seen NPSs more than double since 2015, which reached 1.6 trillion yuan as at end of March 2017.

With interest in defaulted debt has risen and Beijing is pushing lenders to find new market-based ways to deal with distressed loans, this has incited banks and asset managers to think outside the square of traditional venues like action houses and exchanges to dispose off assets.

Asset managers have recently collaborated with Alibaba to set up a special section on Taobao to auction off its assets. And now, there is a special actions aspect on the Taobao app setup, where Chinese consumers can go online and see a vast array of bad loans and soured assets – around one billion yuan of bad loans and bad assets are being marketed on Taobao’s platform per day.

While e-commerce platforms provide access to a larger pool of investors and the lender has gained interest for assets marketed on Taobao that were unsuccessful in attract interest offline, it’s important to note that sites like Taobao also draw individual investors who probably don’t typically possess the skills required to do full due diligence on an NPL deal. Nevertheless, Taobao will now likely be a key channel in China for banks looking to dispose bad debt.

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