China Cinda Asset Management Co got a hot response from investors in a roadshow on Monday for a Hong Kong IPO that is expected to raise up to $2.5 billion.

Cinda, one of China's four bad-asset managers, has lined up 10 cornerstone investors in its 5.3-billion-share offering, setting a range of HK$3 (39 US cents) to HK$3.58 per share. If it activates the 15 percent greenshoe option, total funds raised could reach HK$21.9 billion.

The cornerstone investors include New York-based Och-Ziff Capital Management Group LLC, China Life Insurance Co and Norges Bank Investment Management, Norway's sovereign-wealth fund.

San Francisco-based Farallon Capital Management LLC and Chinese fund Rongtong Fund Management Co also are on the list.

Together, they have committed to a purchase of just over $1 billion.

Part of the reason for the investor enthusiasm is that the HK$3-to-HK$3.58 range came in lower than expected.

Investors also are betting that Cinda, which mainly buys and manages bad debt from lenders, will benefit from upticks in China's nonperforming loans.

The balance of Chinese lenders' nonperforming loans was 563.6 billion yuan ($91.89 billion), or 0.97 percent, at the end of the third quarter. That is up from 539.5 billion yuan, or 0.96 percent, at the end of June.

Analysts expect lenders' nonperforming loan rate to rise further as the central bank proceeds with its plan to liberalize interest rates.

The People's Bank of China, the central bank, already has scrapped a lower limit loan rate. PBOC Deputy Governor Yi Gang wrote in a new book explaining the reform guideline outlined last week that a ceiling on deposit rates offered by Chinese banks also will be phased out.

Liberalized interest rates encourage competition among lenders and can potentially raise the nonperforming loan level.

The next bad-debt manager in China expected to pursue an IPO is Huarong Asset Management Corp, which hopes to raise up to $2 billion through a listing, although no timetable has been set. Reuters reported the Huarong IPO plans in June.

The four bad-debt managers were created by the Ministry of Finance in 1999 to clear up mounting bad debts in big State-owned lenders.

"IPOs make the bad-debt managers more liquid, and being liquid prepares them to gobble up more bad debts," said Wang Jianhui, chief economist with Southwest Securities Co Ltd.

To help Chinese lenders stay liquid, Beijing said in August it will expand a trial program permitting the sale of bonds backed by bank loans. It also gave the green light for the first time for high-quality securitized assets to trade on stock exchanges.

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