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China considers new holding company for bad debt managers Huarong

(Bloomberg) – China’s finance ministry is considering a proposal to transfer its stakes in China Huarong Asset Management Co. and three other bad debt managers to a new holding company modeled after the one that holds the government’s stakes in state-owned banks, Policymakers are re-examining the proposal, which was first tabled three years ago, as part of discussions on how to manage the financial risks posed by Huarong, said the person, who asked not to. make. Some officials see the creation of a holding company as a step towards separating government roles as regulator and shareholder, streamlining oversight and instilling a more professional management culture in Huarong and his peers, said the person. also discussing whether to attract more external investors, effectively reducing the finance ministry oversight issues, the person said. Regulators are still awaiting advice from senior Chinese leaders on the proposals and how to resolve Huarong’s debt problems, the person added. It is not known what impact, if any, the proposed changes would have on the will. of Beijing to provide financial support to Huarong and his peers. during times of stress. Even though the government indirectly holds stakes in major Chinese banks through a company called Central Huijin Investment Ltd., creditors and other counterparties still see companies as having strong official backing. , when the company missed a deadline to publish its annual results. Any move to inflict losses on Huarong’s creditors would mark an important – and potentially risky – step in President Xi Jinping’s campaign to reduce moral hazard in the world’s second-largest credit market. With nearly 1.6 trillion yuan ($ 251 billion) in debt and a vast network of connections with other financial institutions, Huarong is among the most systemically important companies in China outside of banks. State of the country. longer-term corporate bonds are trading at stressful levels. Its 4.5% perpetual bond is valued at around 60 cents on the dollar, according to data compiled by Bloomberg. In the onshore market, the company’s 3.7% bond due 2022 traded at a record high of 69.9 yuan on Monday. Huarong and China’s finance ministry did not respond to requests for comment. . The company previously said its liquidity position was “good” and that it had not seen any change in government support. Huarong has made financing deals with state-owned banks to ensure that it can repay its debt at least until the end of August. as the company intends to complete its 2020 financials, people familiar with the matter said last month. Huarong also drew up a proposal that would see it offloading unprofitable and non-essential activities while avoiding the need for debt restructuring, although the plan would require the approval of senior politicians, people familiar with the matter said. April. on Huarong’s plight in public as they seek to deal with his debt woes.China Investment Corp., the $ 1 trillion sovereign wealth fund and parent of Central Huijin, opposed a proposal that allegedly saw him assume the State of the Ministry of Finance in Huarong. CIC argued that it did not have the bandwidth or the ability to troubleshoot Huarong’s issues, people familiar with the matter said last month. The ministry itself, which owns 57% of Huarong on behalf of the Chinese government, has not made a commitment to recapitalize the company, although it has not ruled it out either, one person said. revamp the way China oversees all of its bad debt managers.The government created Huarong, China Cinda Asset Management Co., China Great Wall Asset Management Co. and China Orient Asset Management Co. during a banking crisis at the end 1990s, companies carve out 1.4 trillion yuan in non-performing loans from the nation’s largest state lenders. After completing their 10-year tenure as bad debt managers, the companies grew into everything from investment banking to trusts and real estate, borrowing billions from banks and bond investors in the process. Huarong was the most aggressive of the four under former President Lai Xiaomin, who was executed in January for crimes, including corruption. Together, the bad debt managers have nearly $ 50 billion in dollar bonds outstanding and must refinance or repay $ 4.9 billion in maturing notes. until the end of the year, according to data compiled by Bloomberg. While Huarong has so far borne the brunt of sales from bond investors, the company’s peers have also come under pressure. The yield spread on China Cinda’s 3% note due 2031 rose 15 basis points to 238 basis points at 3:36 p.m. in Hong Kong, widening for a fifth consecutive day, according to data compiled by Bloomberg . The spread on the 2.75% China Orient bond due 2030 increased 10 basis points to 226, set for the widest level since the note was issued in November. ahead with the most reliable source of economic information. © 2021 Bloomberg LP


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