China Huarong Gets $6.6 Billion Equity Injection in Bailout

(Bloomberg) -- China Huarong Asset Management Co. plans to raise as much as 42 billion yuan ($6.6 billion) by selling shares to a group of state-backed investors and said it will divest more assets as it unveiled long-waited details on a rescue package to keep the troubled bad-debt manager afloat.

The Beijing-based firm will sell no more than 41.2 billion shares to investors led by Citic Group at 1.02 yuan apiece, a 23% premium to the last closing price before the suspension of trading, according to a Hong Kong Stock Exchange filing late Wednesday. Upon completion, Citic will hold 23.46% of Huarong, while the Ministry of Finance’s stake will fall to 28% from 57%.

The capital injection, subject to shareholder and regulatory approval, was first flagged in August and aimed at ending speculation over the firm’s dire situation, which had become the biggest test in decades of the willingness in Beijing to support state-owned borrowers. Still, the amount the share sale is expected to raise is below a 50 billion-yuan package discussed in the summer. 

Huarong’s trouble emerged in late March when the company delayed its annual report, roiling markets across Asia amid concern over whether it can cover its $242 billion in liabilities -- including about $20 billion of offshore bonds. The financial giant in August finally revealed it had suffered a record loss of $15.9 billion in 2020, and at the same time divulged outlines of the rescue package. 

Huarong bonds have recovered most of their value since late August. Huarong’s 5.5% dollar notes rose 2.6 cents on the dollar to 102.9 cents on Thursday, set for the biggest jump in three months, compared with a record low of 62.3 cents on the dollar in April. 

Huarong has so far paid all its bonds on time. The company has said it can continue to honor local and offshore debt obligations, but its ability to do so over the longer term will depend on how much cash it can raise from asset disposals, people familiar have said. 

Huarong also said on Wednesday it plans to sell its 40.53% stake in Huarong Xiangjiang Bank and its 79.92% holding in Huarong Financial Leasing. The company last month won shareholders approval to sell stakes in the securities unit and this month received regulatory approval to sell 70 billion yuan in bonds on the nation’s interbank market.

Other than Citic, China Insurance Investment, China Cinda Asset Management Co., China Life Asset Management Co. and ICBC Investment will take part in the fundraising, according to the statement. Sino-Ocean Capital Holding, which was listed among the potential strategic investors in August, was no longer a participant. 

Shares of Huarong will remain suspended.

Together with China Cinda, China Great Wall Asset Management Co. and China Orient Asset Management Co., the company was created to buy bad loans from banks in the aftermath of the late 1990s Asian financial crisis, when decades of government-directed lending to state companies had left China’s biggest lenders on the brink of insolvency.

The bad-debt firms later expanded beyond their original mandate, creating a labyrinth of subsidiaries to engage in other financial businesses and borrow billions from the bond market. Huarong was the most aggressive of the four under former Chairman Lai Xiaomin, who was executed in January for crimes including bribery.

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With assistance from Bloomberg