BEIJING / HONG KONG (Reuters) – China is pushing China Huarong Asset Management Co to sell non-core assets, two people involved in the overhaul told Reuters, while considering offering an implied guarantee of the bad debt manager’s liabilities loaded with debt.
Regulators are pressuring the state-controlled “bad bank”, which has been trying to restructure since 2018, to sell units comprising a bank, trust, investment company and consumer finance company, have indicated the sources.
The plan, according to a source, envisions authorities informally backing a $ 20 billion debt due this year for the sprawling company, one of the country’s four giant public asset managers.
Huarong’s troubles scared investors in China’s dollar bond market in April after it delayed its trading results, causing downgrades, global agency warnings and continued suspension of stock trading. Huarong’s onshore and offshore subsidiaries made timely repayments on maturing debt.
“The benefit of bailout (Huarong) is great,” the other source said. “The same is wrong not to bail him out.”
The Beijing-based company, created in the late 1990s to handle sour state bank debts, has the Ministry of Finance as its largest shareholder. Former President Lai Xiaomin was executed in January after an investigation into the transplant over the period he turned Huarong into a financial conglomerate.
Authorities plan to ask other public asset managers – China Cinda Asset Management, Great Wall Asset Management and Oriental Asset Management – to undertake a similar downsizing after Huarong, the sources said.
They asked not to be identified as the information is not public and they are not allowed to speak to the media.
Huarong told Reuters on Friday in an emailed statement that regulators asked him to “go back to our roots, focus on our core business and strengthen our core competitiveness.” He neither confirmed nor denied the asset sale, saying he would make statements in the future and did not comment on any debt guarantees.
“The company will seriously fulfill our debt repayment obligations with a responsible attitude,” Huarong said.
The Ministry of Finance and the China Banking and Insurance Regulatory Commission (CBIRC), Huarong’s regulatory supervisor, did not immediately respond to requests for comment.
Authorities have not made any final decisions on a bailout or Huarong’s long-term business development prospects, the sources said. Regulators are awaiting the final results of the audit of Huarong’s delayed annual report, which could be released in August, before making such decisions, the second source said.
Huarong’s debt support would not be a public announcement but a more informal persuasion by the authorities, as sometimes seen in China, to prevent creditors from taking drastic action, the first source said.
The CBIRC, for example, previously asked some banks not to withhold loans in Huarong and asked some state-owned banks to be ready to back it in cash, Reuters reported in April.
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Beyond any bailout of Huarong, the plan aims to boost confidence in quality Chinese issuers in the offshore market, the two sources said.
Regulators are trying to avoid bankruptcy or “haircuts” for investors in Huarong’s offshore dollar bonds after the company’s struggles recently caused prices to drop to record levels, the first source said.
The main goal of the current approach is to ensure that Huarong can roll over its debt and, ideally, use the future cash flow to pay off its debt, the second source said.
The three-year effort to streamline Huarong has been hampered by disagreements between the company, its shareholders and regulators, a third source told Reuters.
Now a number of possible asset sales are underway.
The government of Hunan Province (central China) is in talks to take a majority stake in Changsha-based bank Huarong Xiangjiang, the first source said. The Hunan government and the Huarong bank branch did not respond to requests for comment.
Deutsche Bank is considering buying out Huarong’s stake in their joint venture investment company, Huarong Rongde Asset Management, a fourth source with direct knowledge of the deal said. Germany’s largest lender has dismissed the claim, saying it has no such plans. Huarong Rongde did not respond to a request for comment.
Huarong has listed Huarong Consumer Finance, food delivery giant Meituan which expressed interest earlier this year, the second source said. Meituan did not immediately respond to a request for comment.
A previous central bank plan to buy assets from Huarong through a subsidiary was rejected by Chinese regulators, Reuters reported in April.
(Reporting by Cheng Leng in Beijing, Julie Zhu in Hong Kong and Engen Tham in Shanghai; Additional reporting by Rong Ma in Beijing and Andrew Galbraith in Shanghai; Editing by Vidya Ranganathan and William Mallard)