China pushes Huarong to sell non-core units, mulls implicit support - sources

China Cinda Asset Management

04/06/2021 10:24

BEIJING/HONG KONG, June 4 (Reuters) - China is pushing China
Huarong Asset Management Co  2799.HK  to sell non-core assets,
two people involved in the revamp told Reuters, while
considering offering an implicit guarantee of the liabilities of
the debt-laden bad-debt manager.
    Regulators are pressing the state-controlled "bad bank",
which has been trying to restructure since 2018, to sell units
including a bank, a trust, an investment firm and a consumer
finance firm, the sources said.
    The plan, one source said, envisions the authorities
informally backing $20 billion of dollar debt coming due this
year for the sprawling company, one of the nation's four giant
state-owned asset managers.
    Huarong's problems spooked investors in China's dollar-bond
market in April after it delayed its business results, prompting
ratings downgrades, warnings from global agencies and an ongoing
suspension in share trading. Huarong's onshore and offshore
subsidiaries have made timely repayments on maturing debt.
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    "The benefit of bailing out (Huarong) is great," the other
source said. "So is the harm of not bailing it out."
    The Beijing-based company, established in the late 1990s to
handle soured debts at state banks, has the Ministry of Finance
as its biggest shareholder. Former chairman Lai Xiaomin was
executed in January after a graft probe into the period when he
expanded Huarong into a financial conglomerate.
    The authorities are considering asking the other state-owned
asset managers - China Cinda Asset Management  1359.HK , Great
Wall Asset Management and Oriental Asset Management - to
undertake similar streamlining after Huarong, the sources said.
    They asked not to be identified because the information is
not public and they are not authorised to speak to the news
media.
    Huarong told Reuters in an emailed statement on Friday that
regulators have asked it to "return to our roots, focus on our
main business and build up core competitiveness." It did not
confirm or deny asset sales, saying it would make statements in
the future, and did not comment on any debt guarantees.
    "The company will earnestly fulfill our debt repayment
obligations with a responsible attitude," Huarong said, "At the
same time, the company's liquidity is in good condition and we
have made proper arrangements and adequate preparations for
future bond repayment."
    The Ministry of Finance and the China Banking and Insurance
Regulatory Commission (CBIRC), Huarong's regulatory supervisor,
did not immediately respond to requests for comment.
    The authorities have not made any final decisions on a
rescue or on Huarong's long-term business development prospects,
the sources said. Regulators are waiting for the final audit
results of Huarong's delayed annual report, which could be
released in August, before making such decisions, the second
source said.
    The backing for Huarong's debt would not be a public
announcement but more informal suasion from the authorities, as
sometimes seen in China, to prevent creditors from taking
drastic action, the first source said.
    The CBIRC, for example, previously asked some banks not to
withhold loans to Huarong and asked some state banks to be
prepared to support it with cash, Reuters reported in April.
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    SEEKING BUYERS FROM HUNAN TO GERMANY 
    Beyond any rescue of Huarong, the plan aims to shore up
confidence in investment-grade Chinese issuers in the offshore
market, the two sources said.
    Regulators are trying to avoid bankruptcy or "haircuts" for
investors in Huarong's offshore dollar bonds after the company's
difficulties recently sent their prices to record lows, the
first source said.
    The key aim of current approach is to ensure Huarong can
roll over debt and, ideally, use future cash flow to repay its
debt, the second source said.
    The three-year push to streamline Huarong has been slowed by
disagreements among the company, its shareholders and
regulators, a third source told Reuters.
    Now, a number of possible asset sales are in the works.
    The government of central China's Hunan province is in talks
to take a controlling stake in Changsha-based Huarong Xiangjiang
Bank, said the first source. The Hunan government and the
Huarong banking subsidiary did not respond to requests for
comment.
    Deutsche Bank  DBKGn.DE  plans to buy Huarong's stake in
their joint venture investment firm, Huarong Rongde Asset
Management, said a fourth source with direct knowledge of the
deal. Germany's largest lender declined to comment. Huarong
Rongde did not respond to a request for comment.
    Huarong has put Huarong Consumer Finance on sale, with
food-delivery giant Meituan  3690.HK  expressing interest
earlier this year, the second source said. Meituan did not
immediately respond to a request for comment.
    A previous plan for the central bank to buy Huarong assets
through a subsidiary was rejected by Chinese regulators, Reuters
reported in April.  urn:newsml:reuters.com:*:nL8N2MF2GH

 (Reporting by Cheng Leng in Beijing, Julie Zhu in Hong Kong and
Engen Tham in Shanghai; Additional reporting by Rong Ma in
Beijing and Andrew Galbraith in Shanghai; Editing by Vidya
Ranganathan and William Mallard)
 ((cheng.leng@thomsonreuters.com; +8610-5669-2129;))