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SOE debt falls further on Huarong restructure report

(ATF) Holders of bonds issued by state-owned-enterprises (SOEs) suffered more losses Tuesday amid reports that the troubled bad-debt manager China Huarong Asset Management may be restructured.

Concern that the financial giant will renege on its own debts has sent a chill through credit markets and pushed a returns-focused gauge of SOEs on the ATF China Bond 50 Index to its lowest in almost two years.

The Enterprise sub-index fell 0.05% after a 0.17% drop Monday. That contributed to a lacklustre day on the benchmark ATF CB50 Index of AAA rated China credits, which remained unchanged at 106.68.

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Media reports said China Huarong’s bonds fell after credit data provider Reorg Research said regulators were mulling a restructuring of the company’s debt. Huarong has an estimated $22 billion of outstanding debt, all guranteed by its offshore entity, according to Bloomberg.

Huarong, a quasi-domestic systematic important financial institution (D-SIFI) with total assets of 1.7 trillion yuan has battled with financial problems and the execution of its former chief executive for fraud. Its bonds have been downgraded and the company has been put on life support.

The Enterprise gauge has fallen 0.78% this quarter as the Huarong crisis weighed on investors and as a flurry of coupon payments depressed the gauges.

The Financial sub-index fell 0.01% Tuesday after Nanjing Metro Group made a coupon payment on its 3.18% bond due in March 2025. 

The Corporate bond sub-index gained the most in two weeks, rising 0.03%, after Tencent-backed food delivery giant Meituan raised $10bn in a sale of bonds.

Mark McCord

Mark McCord is a financial journalist with more than three decades experience writing and editing at global news wires including Bloomberg and AFP, as well as daily newspapers in Hong Kong, Sydney and Melbourne. He has covered some of the biggest breaking news events in recent years including the Enron scandal, the New York terrorist attacks and the Iraq War. He is based in the UK. You can tweet to Mark at @MarkMcC64371550.

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