[Commentary] Will China Huarong Be Better Tomorrow?

By MOS Finance Team – Opal

On May 12th, last Wednesday, Bloomberg reported that the heightened financial stability risks surrounding China Huarong Asset Management Co. could prompt the central bank, People’s Bank of China, to proceed more cautiously in tapering its monetary support this year.

China Huarong Asset Management Co., Ltd. was incorporated in Beijing, China in November 1999, and was one of the four state-owned asset management companies. In October 2015, China Huarong raised HK$17.8 billion through an initial public offering (IPO).

A corruption probe into China Huarong was launched in April 2018 by the Central Commission for Discipline Inspection, and the National Supervisory Commission. Lai Xiaomin, its former chairman, the member of the Chinese Communist Party and a big star famous for his quote “Huarong will be better tomorrow”, was indicted for his accepting 1.788 billion yuan in bribes and larceny in amount of 25.13 million Yuan. In January 2021 Lai Xiaomin was sentenced to death for what a Chinese court called egregious financial crimes and bigamy. Many people were involved in his case as he was nicknamed as “3 Hundred” which stands for more than a hundred houses, a hundred high profile acquaintances and a hundred mistresses that he had.

However Chinese business tycoon, the pioneer and leading activist of the Whistleblower Movement, Miles Guo revealed in his video on 1/31/21 that Lai Xiaomin was a straw man of Chinese President Xi Jinping’s family and Chinese Vice President Wang Qishan’s family and he is well connected to some other most powerful political and business leaders as well. He got killed for knowing too much top secrets and for his role as a money laundry operator for them, which proved the evil nature of the CCP’s ruling kleptocrats.

China Huarong has been in trouble since then. The company’s unexpected delay in releasing its 2020 annual results has raised concerns in the market, and there are rumors that it is in the process of debt restructuring or even bankruptcy. The risks are spilling into global markets as the most urgent issue for Huarong at present is to solve the potential liquidity risk in the offshore bond market. The recent decline of Huarong’s US dollar bonds has continued, and the yield on US dollar bonds due in April next year once rose above 50%. It is much worse than Argentina’s century bond with high yield 15% which may default any time.

It is confirmed that the CCP coordinated financial institutions to “No Loan Drawdown” to Huarong addressing its short-term liquidity risks. The market is anticipating the CCP will bail China Huarong out as it appears difficult for China Huarong to self-redeem after three years struggling.  Ironically, the company was originally set up to mitigate the financial risks and manage the asset. Can the company get through the difficult times and mitigate its own financial risks? We shall see.

Reference:

https://cn.reuters.com/article/china-huarong-bank-loan-0417-idCNKBS2C40C4

https://www.economist.com/finance-and-economics/2021/04/22/the-woes-of-huarong-pose-dilemmas-for-beijing

https://www.bloomberg.com/news/articles/2021-05-13/huarong-says-no-change-in-state-support-prepared-to-repay-debt

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