China Cinda Asset Management – one of the big four state-run asset managers – has launched a RMB 10 billion ($1.5 billion) fund designed to give liquidity relief to firms undergoing bankruptcy proceedings.
Due to the competing interests of parties involved in an insolvent company’s bankruptcy proceedings, some immediate financial obligations such as taxes, salaries, and severance packages may not be covered, delaying the path to bankruptcy.
“Some of these companies should have been eliminated by the rules of the marketplace, but when it comes time for liquidation, they face problems such as how to tackle the fees they owe,” Caixin quotes one Cinda official as saying.
Firms in such a position are not eligible for further loans from commercial banks, according to the official, so Cinda’s fund is filling that gap. He added that the fund had already invested RMB 158 million in such companies as of the end of last month.