Chinese officials are reportedly pressing China Huarong Asset Management Co to sell non-core assets, but also considering offering a guarantee of the bad-debt manager’s liabilities, sources say
(AF) Regulators are pressing the state-controlled debt manager, which has been trying to restructure since 2018, to sell units including a bank, a trust, an investment firm and a consumer finance firm, sources have told Reuters.
Huarong is one of China’s four large state-owned asset managers but it been facing a crisis, with $20 billion of dollar debt coming due this year.
Huarong’s problems troubled investors in the dollar-bond market in April after it delayed issuing its business results, which led to ratings downgrades and warnings from global agencies. Trading in its shares were also suspended. Huarong subsidiaries have made repayments on maturing debt on time but investors are still wary.
“The benefit of bailing out (Huarong) is great,” one source was quoted as saying. “So is the harm of not bailing it out.”
The Ministry of Finance is the biggest shareholder in the company, which was set up in the late 90s to handle bad debts at state banks. Huarong’s problems centre around former chairman Lai Xiaomin, who was executed in January after a graft probe into the period when he expanded Huarong into a financial conglomerate.
The authorities are considering asking the other state-owned asset managers – China Cinda Asset Management, Great Wall Asset Management and Oriental Asset Management – to undertake similar streamlining after Huarong, the sources said.
The government of Hunan province in central China is in talks to take a controlling stake in Changsha-based Huarong Xiangjiang Bank, one source said.
Meanwhile, Deutsche Bank plans to buy Huarong’s stake in their joint venture investment firm, Huarong Rongde Asset Management, said a fourth source with direct knowledge of the deal. Germany’s largest lender declined to comment. Huarong Rongde did not respond to a request for comment.
Huarong has also put Huarong Consumer Finance on sale, with food-delivery giant Meituan expressing interest earlier this year, the second source said.
Other parties in these alleged deals preferred not to comment.
Huarong sent a statement to Reuters on Friday that said regulators have asked it to “return to our roots, focus on our main business and build up core competitiveness.” It did not confirm or deny asset sales, saying it would make statements in the future, and did not comment on any debt guarantees.
“The company will earnestly fulfill our debt repayment obligations with a responsible attitude,” Huarong said, “At the same time, the company’s liquidity is in good condition and we have made proper arrangements and adequate preparations for future bond repayment.”
The authorities have not made any final decisions on a rescue or on Huarong’s long-term business development prospects, the sources said. They are waiting for the final audit results of Huarong’s delayed annual report, which could be released in August, before making such decisions, the second source said.
The banking regular previously asked some banks not to withhold loans to Huarong and asked some state banks to be prepared to support it with cash, Reuters reported in April.
Beyond any rescue of Huarong, the plan aims to shore up confidence in investment-grade Chinese issuers in the offshore market, the two sources said.
Regulators are trying to avoid bankruptcy or “haircuts” for investors in Huarong’s offshore dollar bonds after the company’s difficulties recently sent their prices to record lows, the first source said.
The key aim of current approach is to ensure Huarong can roll over debt and, ideally, use future cash flow to repay its debt, the second source said.
The three-year push to streamline Huarong has been slowed by disagreements among the company, its shareholders and regulators, a third source said.
With reporting by Reuters (Cheng Leng, Julie Zhu and Engen Tham).