ADVERTISEMENT

China Huarong’s Journey From Bad News to Bailout: A Timeline

China Huarong’s Journey From Safe Bet to Bad News: A Timeline

The drama surrounding bad-debt manager China Huarong Asset Management Co. has presented a major test of Beijing’s willingness to shield state-owned firms from market forces -- particularly one so integral to the nation’s financial system. 

Months of speculation over the firm’s fate rattled China’s credit markets. Investors were on edge, before a rescue package was unveiled in August that included a capital replenishment. That set off a surge in the company’s dollar bonds, with many back near their levels before the delay in releasing last year’s financials. 

China Huarong’s long-delayed 2020 results revealed a record $15.9 billion loss, soaring leverage and capital buffers far short of the regulatory minimum. 

The firm’s annual loss was fueled by asset writedowns, with many of its issues stemming from its expansion into areas such as securities, trusts and futures over the previous decade.  Former Chairman Lai Xiaomin was executed in January after being found guilty of taking more than $275 million of bribes. 

China Huarong’s Journey From Bad News to Bailout: A Timeline

The drama also played out as China has resumed its deleveraging campaign and moved to reduce moral hazard. Yet to be disclosed is what exactly the proposed bailout will look like for China Huarong and when exchange trading of its shares will finally resume.

Here’s a look at the key events for China Huarong:

Aug. 29

  • The company reports a loss of 102.9 billion yuan ($15.9 billion), matching the warning made 11 days earlier. The firm’s leverage ratio soared to 1,333 and its capital buffers are far short of regulatory minimums. China Huarong also posts a 25% year-over-year drop in net income for the first half of 2021.

Aug. 25

  • Moody’s Investors Service puts China’s three other big state-owned bad-debt managers on review for possible downgrade as it assesses their “very high government support” in light of China Huarong’s recapitalization plan.

Aug. 23

  • Moody’s downgrades China Huarong to two steps above a speculative-grade level, citing the company’s weakened capital and profitability. Minutes later, Fitch Ratings flips its rating watch to positive from negative on a recapitalization plan that shows “a form of extraordinary support” from authorities.

Aug. 20

  • S&P Global Ratings continues to keep China Huarong on watch for possible downgrade, citing the need for greater clarity over the company’s core credit risk metrics and impact from its planned bailout and divestitures. S&P also cuts its ratings outlook to negative on China Great Wall Asset Management Co. and China Orient Asset Management Co. due to lower regulatory barriers to entry for management of distressed assets.

Aug. 18

  • In addition to the estimated 2020 loss, China Huarong announces that government-backed investors will recapitalize the firm. Bloomberg News earlier reports the amount of replenished capital could be 50 billion yuan. China Huarong also says there’s no plans to restructure debt and that preparations have been made to meet future bond payments, helping send its dollar bonds surging.

Aug. 17

  • The firm says shareholders approved the appointment of Liang Qiang as president and proposals to exit some non-core units. The plans involving the units were announced Aug. 2.

Aug. 16

  • China Huarong’s dollar bonds climb after REDD reported that Citic Group may become the firm’s controlling shareholder after winning State Council approval for a restructuring plan.

Aug. 11

  • REDD, citing an unnamed source, reports the firm plans to issue a 2020 profit warning in about a week and release its full results the week of Aug. 23. Some dollar bonds hit their highest levels in months. Meanwhile, Fitch puts the rating of a China Huarong unit much deeper into junk territory, citing uncertainty about future support and the lack of a refinancing plan.

Aug. 3

  • Bloomberg News reports China Huarong is planning to sell its 5% stake in Ant Group Co.’s consumer finance unit amid efforts to exit non-core businesses.

July 30

  • China Huarong dollar bonds post their biggest weekly declines since May, amid broader softness in China’s credit market.

July 16

  • The firm’s key international unit says it will redeem a $500 million perpetual bond in September, confirming a Bloomberg News report. Speculation about the note being called had helped reverse some of July’s bond weakness. Meanwhile, just 4% of investors say in a Citigroup Inc. survey that Huarong will default on its debt, versus 47% predicting it will get sufficient state assistance to avoid default.

July 13

  • Huarong Jinshang Asset Management Co. transfers funds to repay a 500 million yuan maturing local bond, among the debt obligations met by China Huarong and its units. China Huarong International Holdings Ltd. wired money earlier in the month to meet a $400 million dollar note coming due.
China Huarong’s local bonds coming due or puttable in 2021
IssuerMaturityPut DateAmount Issued (yuan)
China Huarong Financial Leasing Co.8/29/2021 2.4 billion
Huarong Jinshang Asset Management Co.10/23/2021 1 billion
China Huarong Asset Management Co.11/22/2021 12.5 billion
Huarong Rongde Asset Management Co.10/17/202210/17/20211.5 billion

June 29

  • China Huarong and its auditor say they’re unable to estimate when work on the 2020 report will be completed, sending its dollar bonds lower. The firm also says it intends to transfer its 80% stake in a bad-debt transaction platform.

June 28

  • Bloomberg News reports Citic Group has been asked to look at China Huarong’s books.

June 23

  • Huarong International sends funds to pay off a maturing $250 million dollar bond, adding it remains profitable and that business is improving.

June 22

  • China Huarong is removed from MSCI Inc. benchmarks as trading of its shares remains suspended in Hong Kong because 2020 results haven’t been disclosed. It was dropped from Hang Seng Indexes Co. gauges effective July 12.

June 17

  • Bloomberg News reports China Huarong is soliciting bids and engaging with potential buyers to sell some local units outside of distressed debt. Operations with coveted financial licenses -- including banking, securities trading and leasing -- are among those said to be generating the most interest.

June 11

  • Huarong Jinshang transfers money to repay a 1 billion yuan local bond maturing June 15.

June 4

  • China Huarong appoints Liang as deputy party secretary, Bloomberg News reports, paving the way for the industry veteran to become its president. He had recently been named president at fellow state-run bad bank China Great Wall.

June 2

  • S&P says it continues to weigh a potential downgrade of China Huarong, more than a month after Moody’s and Fitch cut their grades on the firm.

June 1

  • China’s finance ministry is considering transferring its shares in China Huarong and three other bad-debt managers to a new holding company modeled after the one that owns the government’s stakes in state-run banks. Spreads on the three peers’ dollar bonds widen in the following days, also as two of the firms have told China’s banking regulator they’re concerned about losing access to the dollar bond market in the wake of Huarong’s turmoil, reports Bloomberg News.

May 28

  • China Huarong has wired funds to repay $978 million of notes maturing within the following week, Bloomberg News reports, the biggest bond payments since the 2020 results delay.

May 24

  • The firm’s dollar bonds climb after the managing editor of Caixin Media wrote in an opinion piece that China Huarong is “nowhere near” defaulting on its more than $20 billion of offshore notes.

May 21

  • Some of the company’s thinly traded onshore bonds slump after having held up better than its dollar-denominated notes, signaling broadening concern about the firm’s financial health.

May 18

  • China Huarong has transferred funds to repay a $300 million note maturing May 20, Bloomberg News reports, the first dollar bond to come due since the delayed 2020 results. Prices for the firm’s dollar bonds slump earlier in the day after the New York Times reported China is planning an overhaul that would inflict “significant losses” on both domestic and foreign China Huarong bondholders.

May 17

  • The company has reached funding agreements with state-owned banks to ensure it can repay debt through at least the end of August, by which time China Huarong aims to have completed its 2020 financial statements, according to a Bloomberg News report. At least two of its onshore bonds had seen big price declines, worrying some investors.

May 13

  • The firm says it’s prepared to make future bond payments and has seen no change in the level of government support, seeking to ease investor concerns after a local media report that regulators balked at China Huarong’s restructuring plan.

May 6

  • The company says it transferred funds to pay five offshore bond coupons due the following day, occurring amid persistent doubts about its financial health.
China Huarong’s offshore bonds still to mature in 2021
IssuerMaturityAmount Outstanding
China Huarong International Holdings Ltd.9/20/2021$200 million
Huarong Finance II Co.11/22/2021$1.35 billion

April 30

  • China Huarong breaks its silence, with an executive telling media it is prepared to make its bond payments and state backing remains intact. The official also says the week’s rating downgrades “have no factual basis” and are “too pessimistic.”

April 29

  • Moody’s downgrades China Huarong by one notch to Baa1 and keeps the firm on watch for further reduction. The cut reflects the company’s weakened funding ability due to market volatility and increased uncertainty over its future, according to the statement.

April 27

  • China Huarong units repay bonds maturing that day. The S$600 million ($446 million) bond was repaid with funds provided by China’s biggest state-owned bank, according to a Bloomberg News report.

April 26

  • Fitch downgrades China Huarong by three notches to BBB while dropping the company’s perpetual bonds into junk territory. The lack of transparency over government support for the firm may hamper its ability to refinance debt in offshore markets, Fitch said.

April 25

  • China Huarong says it won’t meet an April 30 deadline to file its 2020 report with Hong Kong’s stock exchange because auditors needed more time to finalize a transaction the company first flagged on April 1. Securities and asset-management units said in the days before that they wouldn’t release 2020 results by month’s end.

April 23

  • The China Banking and Insurance Regulatory Commission asks lenders to extend China Huarong’s upcoming loans by at least six months, according to REDD, citing two bankers from large Chinese commercial lenders.

April 21

  • China is considering a plan that would see its central bank assume more than 100 billion yuan of China Huarong assets to help clean up the firm’s balance sheet, according to a Bloomberg News report. Peer China Cinda Asset Management Co. was said to be planning the sale of perpetual bonds in the second quarter.

April 20

  • China Huarong’s key offshore financing unit says it returned to profitability in the first quarter and laid a “solid” foundation for transformation. Reorg Research reports that regulators are considering options including a debt restructuring of the unit, Huarong International.

April 19

  • Huarong Securities Co. says it wired funds to repay a 2.5 billion yuan local note.

April 16

  • The CBIRC says China Huarong’s operations are normal and that the firm has ample liquidity. These are the first official comments about the company’s troubles. Reuters reports Chinese banks have been asked not to withhold loans to Huarong.

April 13

  • Fitch and Moody’s both put the company on watch for downgrade. The finance ministry, which owns a majority of Huarong, is considering the transfer of its stake to a unit of the country’s sovereign wealth fund, Bloomberg News reports. Chinese officials signal they want failing local government financing vehicles to restructure or go bust if debts can’t be repaid.

April 9

  • China Huarong says it has been making debt payments “on time” and its operations are “normal.” Bloomberg News reports the company intends to keep Huarong International as part of a potential overhaul that would avoid the need of a debt restructuring or government recapitalization. S&P puts China Huarong’s credit ratings on watch for possible downgrade.

April 8

  • China Huarong is preparing to offload non-core and loss-making units as part of the potential overhaul plan, Bloomberg News reports.

April 6

  • Selling gains steam in China Huarong’s dollar bonds, following a holiday in China. Huarong Securities says there has been no major change to its operations, in response to a price plunge for its 3 billion yuan local bond.

April 1

  • China Huarong announces a delay in releasing 2020 results, saying its auditor is unable to finalize a transaction. Stock trading is suspended and spreads jump on the firm’s dollar bonds while China Huarong tells investors its business is running as usual. Caixin reports the company submitted restructuring and other major reform plans to government officials and shareholders.

©2021 Bloomberg L.P.