Chinese bad debt manager Huarong repays $ 453 million bond

SINGAPORE – China’s largest distressed asset manager on Tuesday paid off one of its international bonds in full and sought to allay investor concerns over its liquidity following a downgrade in credit ratings.

The overseas arm of China Huarong Asset Management Co., a sprawling financial institution that helps the country’s commercial banks get rid of nonperforming loans, said it bought back a four-year Singapore $ 600 million bond, equivalent to $ 453 million, which matured in April. 27. This was Huarong’s first international bond to mature since the company delayed releasing its financial results, fueling fears that investors would not be paid back in full.

The state-backed company said it had not defaulted on any international obligations and that the operating conditions of the foreign unit had gradually improved and its liquidity was normal. The division also said it was profitable in the first quarter and reversed losses since 2018, in part thanks to steps it took to improve risk management and internal controls.

Beijing-based Huarong missed a deadline at the end of March to release its 2020 results – an event that sparked a massive sell off of its offshore bonds – and provided no performance figures on Tuesday. Huarong’s latest earnings report was for the first half of last year, when the company said net profit plunged 92% to the equivalent of $ 32 million on revenue of 7 , $ 1 billion.

On Monday, Fitch Ratings downgraded its investment grade credit rating on Huarong three notches from A to BBB and said a further cut could be in store. The rating firm said the Chinese government had not been so willing to indicate its support for the manager of state-owned assets during the recent sale of its offshore bonds.

Huarong is majority owned by the Chinese Ministry of Finance. It was formed in 1999 with three other similar companies to take over bad debts from China’s largest state-owned banks, and then expanded into other activities including securities trading and commercial lending. The company has had recent problems. In January, former Huarong president Lai Xiaomin was executed after pleading guilty to bribery and corruption.

Huarong’s other shareholders include private equity firms and global financial institutions. The company had the equivalent of about $ 161 billion in total debt as of June, including more than $ 22 billion in global bonds.

Earlier this month, some of Huarong’s dollar bond prices fell to 60 cents on the dollar after the company said the release of its 2020 results was pending a “relevant transaction,” with little ‘Additional Information. Over the weekend, Huarong said he would also miss the April 30 deadline to release his annual report. He said his listeners needed more information and time to complete their work.

On Tuesday, a Huarong bond that is expected to mature in 2027 fell a few points to around 73.8 cents on the dollar, according to Tradeweb. Bonds had already bottomed out after the vice chairman of the China Banking and Insurance Regulatory Commission said several Chinese asset managers’ operations were stable. A bond that matures in June was listed at around 93 cents on the dollar, indicating that investors are not confident about full repayment.

Huarong’s latest bond buyback is a step in the right direction, said Pramod Shenoi, Asia-Pacific research manager at CreditSights. “But there is still quite a lot of uncertainty about what will come next,” he said, adding that investors cannot get a sense of what is going on in the company until Huarong releases its statements. results and will detail any restructuring plan.

Fitch said on Monday that given Huarong’s political role and the risk of contagion for refinancing similar government-linked entities, the Chinese government could have a strong incentive to offer extraordinary support. This, however, has yet to materialize, he noted. Moody’s Investors Service and S&P Global are also reviewing Huarong for possible credit rating downgrades.

Write to Chong Koh Ping at [email protected]

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