Four China bad-debt managers downgraded by Fitch

Four Chinese bad-debt managers were downgraded by Fitch Ratings on concern over their financial situation and expectations of reduced government support.

The issuer default ratings of China Cinda Asset Management and China Orient Asset Management were lowered to A - from A, Fitch said yesterday. China Huarong Asset Management and China Great Wall Asset Management were cut to BBB from BBB+, it said.

The firms' ability to buy non-performing assets has been hampered by their financial underperformance, capital constraints, as well as the government's inconsistent support.

"Fitch's across-the-board downgrade of the AMCs should not come as a huge surprise given the persistent weakness in China's property sector and its economy more broadly, leading to continued weak underlying fundamentals at the AMCs," said Nicholas Yap, head of Asia credit desk analysts at Nomura Holdings Inc.

The outlook on China Cinda is stable, while the other three have been placed on Rating Watch Negative, Fitch said. In December, the rating agency said it has a neutral outlook on China's economy, while flagging risks including property sector woes and forecasting a slowdown in growth.

Moody's Investors Service had put China Cinda and China Orient on review for a downgrade after cutting its outlook on Chinese sovereign bonds.

Bad loans at the nation's commercial banks rose to a record 3.2 trillion yuan (HK$3.50 trillion) at the end of September, according to official data.

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 banks on the brink of insolvency. The bad-debt firms went on to expand beyond their original mandate, creating a labyrinth of subsidiaries and borrowing billions from the bond market.

Huarong was the most aggressive of the four under former Chairman Lai Xiaomin, who was executed three years ago for crimes including bribery. State-run financial conglomerate Citic Group led a US$6.6 billion (HK$51.5 billion) bailout of Huarong in 2021.