China eyes 100b yuan Huarong bailout

Business | Bloomberg 22 Apr 2021

China is considering a plan that would see the central bank assume more than 100 billion yuan (HK$119.48 billion) of assets from China Huarong Asset Management (2799), helping the state-owned company clean up its balance sheet and refocus on its core business of managing distressed debt, people familiar with the matter said.

Under a proposal that's still being finalized and could change, a unit of the People's Bank of China would assume assets from some of Huarong's unprofitable operations, the report said. Further details on how the arrangement would work couldn't immediately be learned.

Separately, China Huarong International Holdings, the offshore unit that issues or guarantees most of Huarong's dollar bonds, is in the process of transferring distressed assets worth tens of billions of yuan into a separate offshore entity called China Huarong Overseas Investment Holding, a source said. The move is aimed at improving the financial health of China Huarong International, the group's main link to overseas funding, the person said.

Bloomberg has previously reported that Huarong proposed an overhaul plan to Chinese regulators that would involve offloading its money-losing, non-core businesses.

If the PBOC proposal comes to fruition, it would mark a significant show of government support for a company that has faced intense investor scrutiny after missing a deadline to report earnings at the end of March. Speculation about a looming debt restructuring sent Huarong's dollar bonds to record lows last week, prompting some investors to reconsider assumptions about implicit government guarantees that have underpinned China's credit market for decades.

While the China Banking and Insurance Regulatory Commission said last week that Huarong was operating normally and had ample liquidity, authorities have remained quiet about whether the government will offer any financial support.

The company's 4.5 percent perpetual bond gained 6.4 cents on the US dollar to 79.8 US cents (HK$6.2) yesterday, while its 3.75 percent US dollar bond due in 2022 climbed 5 US cents to 87.7 US cents.

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