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S&P say Huarong ‘events’ could spark state support review

American credit rating agency S&P Global Ratings has voiced concerns over Beijing’s support for subsidiaries of Chinese bad-loan giant China Huarong Asset Management Co Ltd.

S&P said recent Huarong events – hit by an offshore bond sell-off and a suspension in its shares since March 31, as well as failed investments and a bribery scandal that saw its chairman executed in January – could prompt it to review government support for state-owned enterprises.

Huarong is one of China’s four biggest distressed asset management companies which counts the Ministry of Finance as its biggest shareholder.

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Huarong and its subsidiaries currently have outstanding offshore bonds worth $22.39 billion, according to Refinitiv data, with some $3.57 billion of them maturing in 2021.

In a statement, S&P said it believed Huarong had a high likelihood of receiving “extraordinary government support”, but that information disclosure delays and a prolonged inability to access capital markets could prompt a reassessment.

“If the extraordinary government support were not forthcoming, we may need to reassess the support for Huarong’s offshore subsidiaries as well as the support for offshore subsidiaries of other Chinese government related entities,” the statement said.


S&P placed the ratings of Huarong and its rated subsidiaries on watch for possible downgrades earlier this month after China Huarong delayed the release of its 2020 earnings. Moody’s and Fitch also said they were reviewing ratings.

The earnings delay and a muted official response have led to concern among bond investors over the strength of implicit government backing of offshore subsidiaries of state-owned enterprises. 

Those fears have eased this week following regulatory reassurance and after a key Huarong offshore subsidiary said it recorded a profit in the first quarter.


A portfolio manager said the market’s confidence nevertheless remained fragile amid fears that foreign bondholders could still be subject to haircuts on their investments.

But S&P said it expected policymakers to prevent worries over Huarong’s creditworthiness from evolving into systemic financial instability that could affect its sovereign rating for China, of A+ with a stable outlook.

“The government has said little about the situation so far. However, we believe they are ready to act if the stress on Chinese financial markets show signs of escalating significantly,” said S&P Global Ratings sovereign credit analyst KimEng Tan. “Policymakers view maintaining stability as a top priority.”

  • Reporting by Reuters

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Sean O'Meara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.


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