When the former chair of China’s biggest manager of distressed debt was executed in January, the focus had been on the Rmb1.8bn ($280m) of bribes he had been found guilty of taking.
The amount misappropriated by Huarong Asset Management’s Lai Xiaomin, whose crimes included abusing the power to allocate credit and bigamy, was the highest since the founding of the People’s Republic of China in 1949, according to the judge that presided over the case.
But investors’ attention has now turned to a number many times bigger: the $22bn of dollar-denominated bonds owed by the state-owned company.
A sell-off in Huarong’s bonds, which was triggered by the group’s failure to release its financial results at the end of March, has become a test case for a longstanding conviction that Beijing will always bail out state-backed companies that borrow on international markets.
“Regulators have to decide who they’re going to help and how, and while they’re deciding, western investors are reacting with shock and horror, because it looks all of a sudden like a company owned 61 per cent by the Ministry of Finance is being hung out to dry,” said Andrew Collier, managing director of Orient Capital Research.
Assets held by Huarong as of June 2020
The prices of some of Huarong’s bonds maturing in 2022 plunged to as low as 67 cents on the dollar last week. They partially recovered on Tuesday after the Chinese regulator said at the end of last week that Huarong’s operations were “normal”, according to local media.
The company’s securities arm said via social media platform WeChat that it had repaid an onshore bond due over the weekend. Big western investors including BlackRock have invested in the company’s offshore bonds, according to Bloomberg data.
More volatility came on Tuesday evening in Asia, when prices of Huarong dollar bonds fell after US-based research firm Reorg Research reported that Chinese regulators were considering a restructuring, citing sources familiar with the matter.
Huarong International, the unit that issues or guarantees most of the group’s offshore debt, said the same day it had returned to profit in the first quarter in a statement posted on WeChat.
The gyrations indicated the importance that markets place on the Chinese government’s stance toward Huarong. The company did not respond to requests for comment.
The group is one of several big distressed asset management companies in China founded to clean up the banking system following the Asian financial crisis in the late 1990s. It has since grown into a sprawling conglomerate with Rmb1.7tn in assets as of last June, after expanding aggressively into areas including property and investment banking.
The company has said its failure to release its financial results was required so it could complete a transaction, without specifying further details. That has tapped…
Go to the news source: Huarong debacle tests Beijing’s resolve to bail out state groups