Huarong in China eases debt fears with bond payments


HONG KONG – Bonds of China’s largest troubled debt manager rebounded on Monday, after the company paid off a local bond on time over the weekend and sought to meet a bond’s payment deadline listed in Hong Kong next week.

Investors were also reassured about the outlook for China Huarong Asset Management after the China Banking and Insurance Regulatory Commission said on Friday that the company, majority owned by the Ministry of Finance, has sufficient liquidity and its operations remain normal.

The redemption and words of support helped stem a massive sale of Huarong bonds that began when the company failed to file its annual results on the Hong Kong Stock Exchange by the March 31 deadline, raising fears of a default on offshore debts.

The company’s offshore bonds were trading as low as 65 cents on the dollar late last week ahead of the CBIRC announcement. As the hardest hit issues returned to more than 80 cents on Monday, the continuation of discounts reflects continued doubt over a timely repayment, market participants said.

“Huarong is not out of the woods yet and will have to undergo government-backed restructuring,” said Hao Hong, head of research at Bocom International in Hong Kong.

As the company is a “systemically important entity” involved in cleaning up the degraded loans of the country’s major state-owned banks, Hao ruled out the possibility of complete default, but added, “There is a possibility of defaults. techniques through delays and bond haircuts, just like other companies that have gone through the restructuring process. “

Huarong repaid a 2.5 billion yuan ($ 383.3 million) onshore note that matured on April 18, a person familiar with the transaction said. The company also organized funds to repay a S $ 600 million ($ 449.5 million) bond owed on April 27, two other people said.

Huarong said on Friday that he had focused on his core business of managing nonperforming loans while exiting “risks,” and that he would meet upcoming bond repayments on time.

Lai Xiaomin, former chairman of Huarong, was executed in January after being convicted of bribery and bigamy, although the company’s bonds were trading until just a few days ago. Under Lai, Huarong used his access to cheap finance to expand into businesses such as securities trading, trusts and other types of investment management.

The company now has over $ 43 billion in bonds outstanding. More than half are expected to mature by the end of 2022, according to data compiled by Refinitiv.

Offshore issues represent around half of the bonds in circulation. International fund managers, including Goldman Sachs Asset Management, BlackRock, Aberdeen Asset Management, GAM Investment and Credit Suisse Asset Management, are among the institutional investors exposed to bonds, according to data from Refinitiv. It is not known if these investors have recently reduced their positions.

Traders say domestic banks, cash-rich companies, insurers and fund houses hold the bulk of Huarong’s domestic bonds.

Huarong has “close ties” to Chinese financial institutions as a troubled debt buyer and through its borrowing, said Shujin Chen, analyst at Jefferies, who added she did not expect default. of a state-backed organization that is “too big to fail.”

Additional reporting by Michelle Chan.

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