Many foreign investment banks, including Deutsche Bank, did not bid on the 6.6 billion yuan (HK$6.22 billion) of bad loans, concerned at the lack of documentation on the underlying assets and the absence of guarantees from the seller, industry sources said.

Two other prominent players in the asset disposal business, Goldman Sachs and JPMorgan, made offers that failed to meet Cinda's minimum price demands, they said. A Cinda spokeswoman declined to comment. ``Many investors were worried that the documents were too quickly prepared, and would not have properly bestowed ownership on the new title-holders,'' one source said. ``It didn't seem (Cinda) had enough time to prepare the paperwork thoroughly enough.''

The successful bids, totaling more than two billion yuan, were for four loan packages - one each from Beijing and Shenzhen, and two from the booming coastal province of Zhejiang, sources said. The auction ended Tuesday.

The victorious bidders were all mainland investors including another asset mangement company, Great Wall. Sources said that Great Wall made the only offer - for the Beijing loans - that exceeded Cinda's reserve price. Several industry insiders questioned why Great Wall even participated in the auction, since its role is to dispose of, not acquire, bad debt.

Cinda was selling category four or ``troubled'' sour assets bought from the Bank of China as part of a 149.8 billion yuan package last summer.

It originally paid 31 cents on the dollar for the loans, which were acquired from the central government, which had earlier paid BOC 50 percent of the loans' face value.

To buy the NPL bundle, Great Wall, which already holds the largest stock of unsold bad debt among the four asset management companies, would have paid more than 31 cents on the dollar.

``This is not the sort of auction we should be seeing,'' said one industry source. ``We need openness and a wider pool of domestic and foreign investors, not opacity.''

Cinda's next auctions will be handled by outside advisers, which may make foreign investors less reluctant to participate. The sale of more than six billion yuan in bad loans scheduled for mid-May is being organized by Deloitte Touche Tohmatsu, while Ernst and Young will handle an auction of eight billion yuan in NPLs in June.

The sales are part of a program unveiled in January to dispose of bad loans with a face value of 21.5 billion yuan.

The slow progress of the bad loan disposal program is especially troubling since many analysts expect mainland banks will soon be hit with a new wave of bad debt thanks to a binge of undisciplined bank lending two years back.

The four asset management companies were set up in 1999, when the government took over US$169 billion (HK$1.31 billion) in bad loans from the country's state-owned banks as part of a plan to restructure the industry and restore it to solvency.

The four corporations - Cinda, Great Wall, Huarong and Orient - picked up another US$50 billion in sour debt last year, mostly bad loans bought by Cinda from BOC, Construction Bank and Bank of Communications.

Thus far, most successful disposals have been done quietly between mainland authorities and local officials. They often involve incomplete or poorly performing assets such as hotels, expressways, bridges and shopping centers.

Sometimes foreign bidders are invited to make offers, but many have largely avoided the market, frustrated by the slow pace of sales, the endless paperwork and the reluctance of state officials to see foreigners gain control of state-owned assets at a discount.elliot.wilson@singtaonewscorp.com