China moves to clean up Huarong’s “bad bank” brand

China CITIC Financial Asset Management

16/11/2023 04:11

(The author is a Reuters Breakingviews columnist. The opinions
expressed are their own.)
       SINGAPORE, Nov 16 (Reuters Breakingviews) - What’s
better than cleaning up your battered brand? Adopting a new one
with the state’s seal of approval.
    That’s the view of China Huarong Asset Management  2799.HK ,
one of the country’s four so-called bad banks created after the
1997 Asian financial crisis to buy soured loans from state-owned
lenders. Late on Wednesday, it renamed itself “China CITIC
Financial Asset Management” after its top shareholder,
state-owned financial conglomerate CITIC group.
    The latter has held a 26.5% stake since a $6.6 billion
government-orchestrated bailout of Huarong in 2021. Given
Huarong’s heavy exposure to China’s struggling real estate
sector, the name change may make it more difficult for CITIC to
steer clear of the troubles engulfing the sector.
    Huarong has been bleeding money for years. In 2018, its
earnings collapsed as then-Chairman Lai Xiaomin became the
target of a graft probe. China executed him three years later
but Huarong’s situation didn’t improve. Its real estate woes
contributed to a net loss of around $4 billion for 2022. That
has already caused some problems for CITIC: it incurred $1
billion in equity investment losses in 2022, per S&P, mainly due
to Huarong's poor performance. For the six months to June,
Huarong still reported a net loss attributable to equity holders
of $676 million.
    In a mutual back-scratching exercise, Huarong also bought a
5% stake in CITIC's Hong Kong-listed unit, CITIC Ltd  0267.HK ,
at a 30% premium to Wednesday's closing price. Tellingly,
Huarong shares rose 15% on Thursday morning but shares of CITIC
Ltd dropped by 1%. Now that Huarong has taken up the CITIC
brand, the state’s support of the bad bank has more at stake if
its troubles don't go away. (By Yawen Chen) 

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 (Editing by Francesco Guerrera and Thomas Shum)