Huarong Asset Chairman Lai Xiaomin Faces Graft Investigation

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(Bloomberg) -- China Huarong Asset Management Co. Chairman Lai Xiaomin is under investigation for graft, as the government’s anti-corruption campaign spreads deeper into the finance industry.

Shares in the state-controlled asset manager were suspended from trading in Hong Kong Wednesday. The spread on the company’s 2027 dollar bond reached the widest since its issue in October.

Lai is under investigation for alleged disciplinary and legal violations, the Central Commission for Discipline Inspection said in a statement. That language is typically used by Chinese courts in corruption cases.

Since becoming president in 2013, Xi Jinping has pushed an anti-corruption campaign that has already nabbed more than 1.5 million Communist Party cadres. More recently, the anti-graft campaign has been reaching into corporate boardrooms as part of an effort to halt the debt-fueled expansion of China’s biggest businesses. High-profile executives at state-owned enterprises and private sector billionaires are finding their wealth and connections are no longer enough to shield them from probes into corruption and financial crimes.

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Corruption charges send a message to Xi’s “real and potential enemies,” said Willy Lam, an adjunct political professor at the Chinese University of Hong Kong. “In Chinese, it’s called ‘scaring the tiger in the next mountain.”’

Wang Zhanfeng, a former head of the banking regulator’s Guangdong branch, may be named as Huarong’s chairman after already becoming party chief at the company, the 21st Century Business Herald reported.

The investigation of Lai comes weeks after Anbang Insurance Group Co. founder and former chairman Wu Xiaohui was tried for fraud after the government carried out an unprecedented seizure of the company in February. After the Anbang takeover, Ye Jianming, a globe-trotting tycoon who runs the conglomerate CEFC China Energy Co., was placed under investigation, according to people with knowledge of the situation.

Links have emerged between Huarong and CEFC, and the energy company’s efforts to take a 14 percent stake in Rosneft PJSC, the Russian oil giant. Beijing News reported in December that a unit of Huarong took a stake in the CEFC unit that planned the $9 billion purchase of the Rosneft stake. The day after the investigation of Ye was revealed, CEFC was taken over by an arm of the Shanghai government, the South China Morning Post reported on March 2.

Financial Risks

Part of the reason for the corporate crackdown is economic. A decade ago, authorities were more willing to overlook bribes, risky loans and dodgy transactions as they sought to stoke growth in the world’s second-biggest economy. Now, the focus has shifted to reducing the country’s mammoth debt load and curbing financial risks that threaten to weigh on growth.

China built up a record debt pile in the wake of the global financial crisis, with liabilities now equal to about 264 percent of gross domestic product, according to Bloomberg Intelligence estimates.

Huarong, one of China’s biggest asset management firms, 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 was worth $16.4 billion before the suspension. The company had planned to list shares in the mainland this year.

©2018 Bloomberg L.P.

With assistance from Andrew Davis

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