China Huarong Asset Management Co., Ltd. update
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China’s largest bad debt management company, Huarong, released a long-awaited financial report that outlined a record loss of 103 billion yuan (US$16 billion) last year, ending a five-month delay that triggered Controversy over Beijing’s approach to business closures.
The company confirmed its rescue plan for state-backed companies, including CITIC, earlier this month. The company said that its leverage ratio jumped to 1,333 times by the end of 2020 as losses wiped out most of its equity.
The results originally scheduled to be announced in April have not been announced. Previously, the company was established in the late 1990s to help clean up the banking system, but its former chairman, Lai Xiaomin, was executed in January for accepting RMB 1 yuan. After years of expansion, bribery reached 800 million.
The filing documents show that last year’s loss was mainly caused by an impairment of RMB 108 billion, which the state-owned enterprise described as a “painful lesson.” In its interim results, it respectively announced the profit attributable to shareholders of RMB 158 million for the first six months of this year.
Chairman Wang Zhanfeng said that due to Lai’s “aggressive and disorderly expansion”, Huarong “seriously deviated from its main responsibilities” and his execution was regarded as an exceptionally severe punishment for financial crimes. The company also mentioned the impact of the 2020 coronavirus pandemic.
In the past decade, Huarong has expanded significantly in China and abroad, transforming itself into a conglomerate with a series of financial businesses that go beyond its core responsibilities for managing non-performing loans.
It is also the main issuer of the dollar-denominated bond market, and investors and traders have assessed whether Beijing will support it.
In April, its perpetual bonds fell to the level of 49 cents against the U.S. dollar, but they have since returned to close to face value after announcing the rescue plan in mid-August.
The rating agency Fitch last week changed the company’s rating observation outlook to “positive”, saying that it believed the plan was “a step for the company to reduce financial pressure in the event of an expected net loss.”
In its performance, Huarong also stated that it will “sell non-main business subsidiaries in the near future to increase the inflow of internally generated funds and replenish capital”.
In June of this year, the rating agency Standard & Poor’s stated that Huarong needs to release its results before the end of August to avoid a technical default on the bonds issued by one of its subsidiaries, Huarong International.
The company was listed in Hong Kong in 2015, and the US private equity firm Warburg Pincus is one of its largest investors. The group said that its shares were suspended from trading in April and will continue to suspend trading until further notice.