Huarong Peers Tell Beijing They’re Worried About Dollar Funding

Two of China’s largest bad-debt managers have told the banking regulator they’re concerned about losing access to the dollar bond market in the wake of turmoil at China Huarong Asset Management Co., according to people familiar with the matter.

China Cinda Asset Management Co. and China Orient Asset Management Co. recently conveyed their concerns to the China Banking and Insurance Regulatory Commission, said the people, asking not to be identified discussing a private matter.

While Huarong has suffered the brunt of selling by bondholders over the past two months, the slump has also spilled over into peers amid questions about the depth of government support for the industry.

CBIRC and Cinda didn’t immediately respond to requests for comment. Orient and Great Wall Asset Management Co., which has the smallest amount of offshore debt among the so-called Big Four bad-debt managers, said they couldn’t immediately comment on whether they had communicated with regulators on offshore funding.

Huarong Peers Tell Beijing They’re Worried About Dollar Funding

None of the four firms have tapped the offshore bond market since Huarong shocked investors by failing to publish its financial results at the end of March. The last sale of dollar bonds by any of the bad-debt managers and their units was China Cinda HK Holdings Co.’s $2 billion offering in January.

Huarong Peers Tell Beijing They’re Worried About Dollar Funding

Some other state-owned financial institutions seeking to sell so-called keepwell bonds in Hong Kong also reported weak demand to the National Development & Reform Commission, one of the people said. The NDRC didn’t immediately respond to a request for comment.

Investors demanded a 258-basis point yield premium over Treasuries to hold a China Cinda unit’s 2031 dollar note on Thursday, the most since mid-April. The spread on a China Orient unit’s 2030 bond increased to 256 basis points, near the widest since the note was issued in November.

The four bad-loan managers have combined liabilities of about 4.5 trillion yuan ($705 billion), including $49 billion of outstanding dollar bonds, according to their latest financial statements and data compiled by Bloomberg. The firms need to refinance or repay $4.9 billion of maturing dollar notes through year-end.

Great Wall raised 6 billion yuan from an asset-backed securities sale on the Shanghai Stock Exchange, it said on Tuesday. Investors include the nation’s commercial banks, their wealth management units and major mutual funds, it said.

Beijing’s silence over the fate of the industry has led investors to turn to media reports for clues. The finance ministry is considering transferring its controlling stakes in the bad-debt managers to a new holding company, Bloomberg News reported Tuesday, raising questions over whether the government is preparing a broad shake-up.

Chinese authorities are still working out how to deal with Huarong’s debt issues. The Financial Stability and Development Committee -- chaired by Vice Premier Liu He -- has asked for briefings on the Huarong situation and coordinated meetings between regulators, regulatory officials have said. But it has yet to communicate to them a long-term solution, including whether to impose losses on bondholders, they said.

Huarong Peers Tell Beijing They’re Worried About Dollar Funding

The CBIRC and NDRC are both members of the FSDC, which is China’s apex financial regulator. It’s not clear whether the concerns flagged by the firms will prompt regulators to respond.

China’s four bad-debt managers were created in the aftermath of the Asian financial crisis, when decades of government-directed lending to state companies had left the country’s biggest banks on the brink of insolvency. The bad-debt firms have since 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.

©2021 Bloomberg L.P.

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