State-backed Chinese investors will bail out Huarong Asset Management, as the under-pressure bad debt manager unveiled losses of Rmb103bn ($15.9bn) after months of uncertainty over its finances.
The state-owned company said late on Wednesday that Citic, the Chinese bank, fellow bad debt manager Cinda Asset Management, China Insurance Investment, China Life Asset Management and Sino-Ocean Capital Holding, the asset manager, intended to make strategic investments of an undisclosed amount.
The proposed capital injection for Huarong prompted a rally in the company’s bonds on international markets, where it has borrowed more than $20bn. On Thursday, its perpetual bonds rose 11 per cent to trade at 95 cents on the dollar, compared to as low as 49 cents in April following a sell-off.
The announcement is a turning point for China’s biggest distressed debt investor. The company’s failure to release its annual financial results in April plunged it into turmoil and sparked wider concerns across Asian credit markets over whether Beijing would allow companies to default.
“The doomsday scenario which some suggested would materialise is being averted,” said Paul Lukaszewski, head of corporate debt for Asia-Pacific at Aberdeen Standard Investments. He added that state-owned enterprises should “maintain status quo in the eyes of investors with respect to expectations of state support and thus their ongoing access to capital markets”.
Huarong said it had “no plans” to restructure its debt in a statement published on WeChat, the Chinese social media platform.
The crippling losses confirmed fears that the company has a gaping hole in its finances. Huarong attributed the losses to the impact of the coronavirus pandemic and the tenure of Lai Xiaomin, its former chair who oversaw a period of aggressive expansion in China and internationally and was executed for financial crimes in January.
“In 2020, as the trial against former chairman Lai Xiaomin for bribery, embezzlement and bigamy commenced and the sentence was pronounced, the group constantly cleared and disposed the risk assets caused by his aggressive operation and disorderly expansion during his tenure,” it said in an exchange filing.
Huarong, which counts international private equity group Warburg Pincus among its big investors, said its more than Rmb100bn of losses in 2020 were based on unaudited financial data. In 2019, net profit attributable to shareholders was Rmb1.4bn.
Huarong held a shareholder meeting on Tuesday at which it received shareholder approval to exit one of its non-core units, a consumer finance business. The company was also given backing to appoint Liang Qiang as its new president. Liang was recently promoted to head Great Wall Asset Management, another bad debt business.
Huarong was founded in the late 1990s to help clean up China’s banking sector after the Asian financial crisis, and listed in Hong Kong in 2015. Trading in its Hong Kong-listed shares remained suspended following its announcements this week.
Additional reporting by Wang Xueqiao in Shanghai