China Huarong Remains on CreditWatch at S&P Despite Bailout Deal
(Bloomberg) -- China Huarong Asset Management Co. remains on S&P Global Ratings’ watchlist for a possible downgrade, even after the bad-debt manager received a state-led bailout.
Huarong’s investment-grade BBB+/A-2 credit rating remains on CreditWatch with negative implications, S&P said in an emailed statement dated Aug. 20, citing continued uncertainties over core credit risks and the potential impact of planned asset sales.
A government-backed rescue package for Huarong was unveiled Wednesday after China’s biggest bad-loan manager posted a record $15.9 billion loss for 2020. The announcement ended months of speculation over Huarong’s future and set off a surge in the company’s dollar bonds. Its Hong Kong-listed shares have been suspended since the end of March.
State-owned investors including Citic Group, China Insurance Investment Co. and China Life Asset Management Co. will replenish Huarong’s capital. Huarong has said it has no plan to restructure its debt, reiterating that it’s made preparations for future bond payments. The company is planning to sell nearly all its local units outside of the core distressed-debt business, Bloomberg reported in June.
S&P expects Huarong’s non-bank operation’s leverage to rise beyond the 12 times it was at around the end of last year and the company’s consolidated shareholders equity “to erode to a great extent.” The ratings firm said it could downgrade Huarong if leverage worsens above 12 times “and stays there.”
Meanwhile, S&P lowered its outlooks on China Great Wall Asset Management Co. and China Orient Asset Management Co. to negative from stable, citing fiercer competition in distressed asset management in the country as barriers to entry have been falling. The three firms, together with China Cinda Asset Management Co., were created to buy bad loans from banks in the aftermath of the late 1990s Asian financial crisis.
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