China Great Wall Asset Management has asked banks to pitch for work on a Hong Kong initial public offering that is expected to raise at least $2bn for the company tasked with cleaning up China’s bad debt.

Requests for proposals were sent to banks and law firms recently, two people with knowledge of the matter said. The IPO is expected to come to market in the first half of next year but could land in the second half of 2018, the people said.

Great Wall will be the third Chinese “bad bank” to list in Hong Kong. The company, along with three other similar groups, was created by China’s finance ministry in 1999 as a vehicle into which non-performing loans could be offloaded from China’s largest commercial banks.

The four companies — including China Cinda, China Huarong and China Orient AMC — took on as much as Rmb1.4tn ($212bn) in bad debt in the early 2000s in what became a bailout for China’s financial system.

Great Wall was responsible for taking on bad loans from Agricultural Bank of China, the country’s third-largest bank by assets.

Great Wall has been preparing for its IPO for more than a year. In 2016, it restructured into a joint stock company, from one wholly owned by the finance ministry.

In October Great Wall told China’s state media that it had made a shortlist of strategic investors for the deal after being approached by more than 200 companies hoping to invest in the group.

While the Chinese government originally planned to phase out the asset managers as they restructured the debt over a decade, the companies have instead accrued full financial licensing and now resemble investment banks. Huarong and Cinda both control banks.

The Ministry of Finance planned for years to take the asset managers public in Hong Kong, but the offerings have so far generated thin interest among global institutions. The listed entities largely were able to go public by grace of “friends and family” deals, where a concentrated number of investors — typically state-backed — took large cornerstone stakes.

Following Cinda’s $2.5bn IPO in late 2013, Huarong raised $2.3bn in October 2015.

The IPO set a record in Hong Kong for the level of cornerstone investors, buying up 70 per cent of the deal that priced at the low end of its marketed range at HK$3.09. Two Chinese state-owned enterprises, Sino-Ocean Land and State Grid, pledged a combined $980m on the deal.

People familiar with Great Wall’s planned offering said they expected a high level of cornerstone investors in the deal as well.

Investors estimate that China’s stock of bad debt has risen to $3tn this year, in step with a decelerating economy. One prominent analyst said recently that the figure could be as high as $6.8tn.

The chairman of Huarong told the Financial Times earlier this year that a pricing bubble was forming in the market for bad debt as many unexperienced buyers rushed into auctions for such assets.

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