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Bloomberg

China considers new holding company for bad debt managers Huarong

(Bloomberg) – China’s Ministry of Finance is considering a proposal to transfer its shares in China Huarong Asset Management Co. and three other bad debt managers to a new holding company modeled on the one that holds the government’s stakes in the banks of the ‘State, according to a person familiar with the matter. Policymakers are re-examining the proposal, which was first presented three years ago, as part of discussions on how to manage the financial risks posed by Huarong, said the person, who asked not to be. identified by discussing private information. Some officials see the establishment of a holding company as a step towards separating the roles of government as regulator and shareholder, streamlining oversight and instilling a more professional management culture in Huarong and his peers, the said. nobody. The authorities are also discussing whether to attract more external investors, thereby reducing the controlling stakes of the finance ministry, the person said. Regulators are still awaiting advice from senior Chinese leaders on the proposals and how to resolve Huarong’s debt problems, the person added. It’s unclear what impact, if any, the proposed changes would have on Beijing’s willingness to expand financial support to Huarong and his peers. during times of stress. Even though the government indirectly holds stakes in major Chinese banks through a company called Central Huijin Investment Ltd., creditors and other counterparties still see companies as having strong official backing. , when the company has missed a deadline to report its annual results. Any move to inflict losses on Huarong’s creditors would mark an important – and potentially risky – step in President Xi Jinping’s campaign to reduce moral hazard in the world’s second-largest credit market. With nearly 1.6 trillion yuan ($ 251 billion) in liabilities and a vast network of connections with other financial institutions, Huarong is one of the most systemically important Chinese companies outside of the country’s public banks. the company’s longer-term bonds are trading at stressful levels. Its 4.5% perpetual bond is valued at around 60 cents on the dollar, according to data compiled by Bloomberg. In the onshore market, the company’s 3.7% bond due 2022 traded at a record high of 69.9 yuan on Monday. Huarong and the Chinese Ministry of Finance did not respond to requests for comment. The company previously said its liquidity situation was “good” and that it had not seen any change in government support. as the company intends to complete its 2020 financials, people familiar with the matter said last month. Huarong also drew up a proposal that would see it offloading unprofitable and non-essential activities while avoiding the need for debt restructuring, although the plan would require the approval of senior politicians, people familiar with the matter said. April. on Huarong’s plight in public as they figure out how to deal with his debt problems. China Investment Corp., the $ 1 trillion sovereign wealth fund and parent company of Central Huijin, opposed a proposal that would have seen it assume the state of the finance ministry in Huarong. CIC argued that it did not have the bandwidth or the ability to troubleshoot Huarong’s problems, people familiar with the matter said last month. The ministry itself, which owns 57% of Huarong on behalf of the Chinese government, has not made a commitment to recapitalize the company, although it has not ruled it out either, one person said. Some officials see the Huarong saga as an opportunity to overhaul the way China oversees all of its bad debt managers. The government created Huarong, China Cinda Asset Management Co., China Great Wall Asset Management Co., and China Orient Asset Management Co. during a banking crisis in the late 1990s, using the companies to contract 1.4 trillion. yuan in non-performing loans from the country’s largest public lenders. After completing their 10-year tenure as bad debt managers, the companies expanded into everything from investment banking to trusts and real estate, borrowing billions from banks and bond investors in the process. . Huarong was the most aggressive of the four under former President Lai Xiaomin, who was executed in January for crimes including corruption. Together, the bad debt managers have nearly $ 50 billion in dollar bonds outstanding and must refinance or repay $ 4.9 billion in maturing notes. until the end of the year, according to data compiled by Bloomberg. While Huarong has suffered the brunt of sales by bond investors so far, the company’s peers have also come under increasing pressure in recent days. China Orient’s 2.75% bond due 2030 fell to 92 cents on the dollar on Monday, from 97 cents at the end of March, while China Cinda’s 3% rating due 2031 fell from 99 cents to 94 cents. cents. More stories like this are available on Bloomberg. comSubscribe now to stay ahead of the game with the most trusted source of business news. © 2021 Bloomberg LP