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HONG KONG, China — China Huarong Asset Management has indicated it cannot predict when its 2020 financial results will be released and has proposed delaying its annual shareholders meeting, reigniting concerns about the country’s largest troubled asset manager and the risk it poses to China’s financial system. Huarong said company operations were continuing normally and that it was working with auditors to conclude the books for 2020. Huarong has more than $43 billion in outstanding bonds. It also said that it intends to sell its 79.6% share in Huarong Zhongguancun Distressed Asset Exchange Center. It didn’t go into any further information. After failing to publish results within the minimum time range, the company’s shares have been suspended in Hong Kong since April 1. It had stated that auditors were needed to look into an unnamed transaction. “Because the relevant transaction of the Company has not been finished,” Huarong said in a statement, “neither the Company nor the Auditor is currently able to estimate the time required for preparation of the 2020 Annual Results or to determine the projected timeline for publishing.” It stated in a separate statement on Wednesday that auditors require more “information and time” and that the delay is not a default. The delay in April caused a sell-off in the company’s bonds, which the Ministry of Finance owns in majority. It has also placed a pall on debt issued by other significant bad debt managers, including China Cinda Asset Management, Great Wall Asset Management, and China Orient Asset Management, who, according to Refinitiv, have $135.7 billion in outstanding offshore and domestic bonds. These entities are crucial in draining China’s banking system, which is the world’s largest in terms of total assets, of growing bad debts. While Huarong has met all bond redemptions on time so far, a default may frighten investors and cause a massive sell-off in Chinese debt. Huarong bonds were little changed on Wednesday, quoted at approximately 67 cents to the dollar for those due in November 2025. According to data gathered by Refinitiv, Chinese corporations have $2.14 trillion in bonds maturing by 2023, which is 60% greater than the value of bonds due between 2018 and 2020. According to S&P Global Ratings, 11 issuers with bonds worth 95 billion yuan ($14.7 billion) defaulted in the first half of 2021, compared to 17 issuers and 92 billion yuan last year. However, each defaulter had three times the value of outstanding bonds this year compared to 2017, and nine times the amount in 2015, highlighting the imminent risk. Concerns about Huarong have grown after the arrest of then-Chairman Lai Xiaomin in 2018. In January, he was found guilty of receiving bribes and bigamy, and he was hanged. The majority of Huarong’s problems arise from his excesses during his tenure, when he took advantage of easy access to low-cost financing to expand into unrelated industries. As of June 2020, Huarong had 1.73 trillion yuan in assets and 1.37 trillion yuan in interest-bearing liabilities, making it one of four large distressed debt managers created up by Chinese regulators in 1999 to assist the country’s banks in dealing with bad loans. According to its June 2020 interim report, its core business of buying and restructuring distressed loans accounts for only roughly half of its total assets, with banking, securities trading, trusts, and other investments accounting for the remaining funds under control. According to prior media reports, China was examining a variety of options to salvage Huarong, including state fund investments and the formation of a holding company. Huarong was retaining enough cash and routine operations, according to the China Banking and Insurance Regulatory Commission in April. According to a filing by Huarong, the banking regulator named Liang Qiang, an asset management veteran, to the senior position of deputy Communist Party head. Liang, who has been president of state-owned Great Wall Asset Management since this year, was named president of Huarong at a board meeting on Tuesday, according to the company. Continue reading

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