Oaktree’s Marks Sees Opportunity in Chinese Distressed Debt

(Bloomberg) -- The amount of distressed debt in China is likely to grow, presenting an opportunity for Oaktree Capital Group LLC, the firm’s co-chairman Howard Marks said in a Bloomberg TV interview.

The Chinese economy may only grow about 4.5% in the first quarter of 2020 which is “extremely low,” Marks said on Monday. There will probably be a “substantial increase” in distressed debt unless the central bank injects liquidity to offset it, he said.

Oaktree is one of the largest distressed-debt investors in the world with about $20 billion committed to credit from faltering companies. The fund has thrived most in times of economic stress, when prices on bonds of companies in danger of defaulting fall to deep discounts.

“We’re feeling our way and getting used to a new market but there’s a good amount of distressed debt in China,” Marks said in the interview, adding that the rise in troubled companies was not good news for China.

Virus Impact

The coronavirus could “wreak havoc” in certain areas of the country and certain sectors of the economy if it is prolonged, he said.

Economists had expected China would aim for growth of around 6% this year, but officials are wondering whether to soften that target in the wake of the virus outbreak.

Despite the People’s Bank of China’s move to cut interest rates and inject liquidity into the market, Chinese stocks fell dramatically on Monday.

In a containment scenario -- with a severe but short-lived impact -- the virus could take China’s first-quarter gross domestic product growth down to 4.5% year on year, according to Bloomberg Economics.

To contact the reporters on this story: Katie Linsell in London at klinsell@bloomberg.net;Guy Johnson in London at gjohnson87@bloomberg.net

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Bruce Douglas

©2020 Bloomberg L.P.