The buyer will pay in cash for the two packages, worth a total of 1.09 billion yuan (US$131 million), making the deal China's first cash sale of non-performing assets to overseas investors through open bidding, Huarong said.

But the firm did not reveal the price of the transaction.

Chinese asset management companies have been selling distressed assets to overseas investors, but only through setting up joint ventures with the buyers.

Huarong said the transaction with Citigroup was the first bad asset sale to overseas buyers the National Development and Reform Commission (NDRC) had approved after it promulgated a new regulation last month to clarify foreign debt administration issues.

The NDRC regulation essentially simplified approval procedures for asset management companies' cash sales of distressed assets to overseas investors, requiring them to just register with the commission for transactions within approved quotas before they report to foreign exchange authorities on foreign debt matters.

Huarong said it received the NDRC's registration confirmation letter last Friday. "That means the project has been approved," a Huarong spokesman said. "After going through foreign debt registration procedures, the transaction will be completed."

The spokesman said the new regulation has significantly improved the environment of China's distressed asset market for overseas investors, and will "further strengthen foreign investors' confidence in China's non-performing asset market, help reduce transaction costs, lift buyers' quotes, and therefore helping asset management companies raise cash recovery ratios and accelerate asset disposal."

China set up four asset management companies in 1999 to take over a combined 1.4 trillion yuan (US$168 billion) of non-performing loans from its four State-owned commercial banks, as part of efforts to help the banks improve their competitiveness.

But progress so far has not been as good as expected, and foreign investors have complained about issues like inadequate transaction flow and legal barriers.

The four companies had disposed of nearly half of the assets they took over by the end of last year. But this pace needs to accelerate as regulators expect them to complete this task by 2006.

The two packages sold to Citigroup were part of Huarong's second international auction of distressed assets at the end of last year. It said earlier that a group of foreign and domestic investors had either won the right to purchase, or agreed to negotiate with Huarong to jointly dispose of a total of 17 packages that worth 22.2 billion yuan (US$2.67 billion).