China Huarong Seeks to Reassure Investors After Profit Plunge

(Bloomberg) -- China Huarong Asset Management Co., whose former chairman is under investigation for graft, has sought to reassure investors that it can withstand any losses after first-half profit plunged 95 percent. Its shares gained.

In a meeting with about 50 analysts and investors, acting President Li Xin said there’s no substantial change to the company’s fundamentals even given its “complicated and difficult moments,” according to a statement dated Tuesday. Shareholders including Warburg Pincus LLC, China Life Insurance Co. and Sinochem Group are more determined to hold their stakes for the long term, the statement said.

Huarong said Aug. 31 first-half profit tumbled as impairment losses on financial assets almost tripled. The nation’s largest bad-loan manager also disclosed it’s in breach of bank covenants, primarily interest coverage.

Huarong shares gained as much as 5.7 percent in Hong Kong trading Wednesday, and were up 2.5 percent at 12:05 p.m. local time. The stock has lost 56 percent this year, compared with an 11 percent decline in the MSCI China Financials Index.

The company is grappling with bloated costs after total assets ballooned sixfold to 1.87 trillion yuan ($274 billion) in the five years through December, according to data compiled by Bloomberg.

Graft Probe

Lai Xiaomin resigned as chairman in April and is being investigated for alleged disciplinary and legal violations. The firm’s woes coincided with a meltdown in Chinese stocks sparked by the nation’s escalating trade frictions with the U.S.

In a separate statement Tuesday, Huarong said while Lai’s personal issues had a short-term impact, the business is now back to normal and operating figures have shown a significant improvement since mid-year.

Huarong was one of four companies set up by the government in 1999 to help clean up a banking system riddled with bad debt. The state-owned enterprise held a $2.5 billion initial share sale in 2015 that gave it a market value of more than $15 billion. Huarong is now worth $8 billion. The company had planned to list shares in the mainland this year.

©2018 Bloomberg L.P.