Exclusive: China asks banks not to deny loans to asset manager Huarong – sources


BEIJING (Reuters) – Chinese regulators have asked some banks not to deny loans to distressed asset management giant China Huarong Asset Management Co, as part of support measures to stabilize its cash flow and to reduce the risk of market contagion, sources told Reuters.

Huarong is one of China’s four largest distressed asset management companies, which counts the Ministry of Finance as its largest shareholder. It has been hit by an offshore bond sale and a suspension of its shares since March 31, after announcing a delay in its earnings report due to a “relevant transaction” yet to be finalized.

It is the latest in ailing debt manager’s troubles whose failed investments and business expansion have forced him into restructuring talks since 2018 and whose President Lai Xiaomin was executed in January after an investigation into the transplant.

Huarong and its subsidiaries currently have offshore bonds outstanding worth $ 22.39 billion, according to data from Refinitiv, of which $ 3.57 billion is due in 2021.

The latest measures advocated by financial regulators aim to contain contagion and ensure that Huarong’s onshore cash position is stable, according to four sources which include Huarong creditors and who have direct knowledge of the restructuring plan of Huarong. company assets.

Some state-owned banks have also been told to be ready to back Huarong, one of the four sources said, without giving further details.

The Ministry of Finance, the People’s Bank of China, and banking and currency regulators did not respond to requests for comment. There was also no immediate response from Huarong.

Huarong is operating normally and has sufficient liquidity, the Shanghai Securities News reported on Friday, citing China’s banking and insurance regulator.

The China Banking and Insurance Regulatory Commission (CBIRC) said Huarong is working with auditors to complete the audit of its 2020 annual report as soon as possible. The company will release information after the audit is completed, the report said.

Investors fear that any restructuring of the company’s debt could leave holders of its US dollar bonds unprotected and force a costly reassessment of the government’s long-standing support for Chinese public issuers.

Firms on the continent have over $ 600 billion in bonds outstanding. Most mature over the next two years, according to Refinitiv data. Prolonged uncertainty over Huarong’s fate could increase financing costs, posing risks to the country’s strong economic recovery.

Market concerns spilled over to other issuers and pushed the cost of insuring against China’s dollar debt default to its highest since October.

The support comes as Huarong prepares to repay a 2.5 billion yuan ($ 382.84 million) onshore exchange-traded bond due April 18, although investors do not expect the backing. the company is having difficulty with this obligation.

The yield on this instrument stood at 4.293% on Friday, according to Refinitiv data, down from 4.365% on March 31.

Huarong redeemed two maturing onshore corporate bonds with a combined value of 3.1 billion yuan on March 15.

The company is also exploring the possibility of repaying its maturing offshore debt with onshore funds, a move that requires coordination and final approvals from the country’s finance ministry and foreign exchange regulator, one of the sources said.

The sources could not be identified because the information has not yet been made public and they are not authorized to speak to the media.

Huarong’s unrest began in 2018 after then-president Lai was targeted in an anti-corruption investigation and found guilty by local courts in the country’s largest financial corruption case since the founding of the People’s Republic of China in 1949.

Since his fall, Huarong has been the subject of an asset restructuring plan to clean up the massive pile of distressed debt accumulated through investments under Lai’s tenure.

As of mid-2020, Huarong had 160 billion yuan in net assets and more than 30 billion yuan in loan loss provisions.

($ 1 = 6.5301 Chinese renminbi yuan)

Reporting by Cheng Leng, Kevin Huang, Rong Ma, Ryan Woo in Beijing and Andrew Galbraith in Shanghai; Edited by Vidya Ranganathan and Kim Coghill

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