Huarong’s contagion risk resurfaces in peers owed $ 454 billion

(Bloomberg) – A massive sell-off of bonds from China Huarong Asset Management Co. spreads to other major bad debt managers nationwide.

The yield spread on the 3% dollar one-unit China Cinda Asset Management Co. note due 2031 widened to 242 basis points against Treasuries on Tuesday, the highest since mid-year. -April. China Orient Asset Management Co.’s 2.75% one-unit bond due 2030 closed at 231 basis points that day, the widest spread since the note was issued in November.

The unrest in Huarong since the company delayed financial results two months ago has cast a shadow over the industry as investors await details of its restructuring and negotiations with the government.

China’s finance ministry is considering a proposal to transfer its shares in Huarong and the other three bad debt managers to a new holding company modeled on the one that owns the government’s stakes in state-owned banks, Bloomberg News reported on Tuesday.

“Due to the prolonged delay in Huarong’s 2020 results and the increasingly complex restructuring potential, investors are increasingly examining exposure to Chinese AMCs,” said Dan Wang, analyst at Bloomberg Intelligence.

Huarong’s dollar bond due 2025 is listed at 70 cents to the dollar on Wednesday, while its perpetual 4.5% is at 60 cents, according to prices compiled by Bloomberg.

China Cinda, China Orient and China Great Wall Asset Management Co. have combined liabilities of 2.9 trillion yuan ($ 454 billion), including $ 28 billion in outstanding dollar bonds, according to their latest financial statements and data. compiled by Bloomberg.

The four bad debt managers were created in the aftermath of the Asian financial crisis, when decades of government loans to state-owned enterprises left China’s largest banks on the brink of bankruptcy. Since then, companies have created a maze of affiliates to offer loans and engage in other financial activities.

Cinda has 318 subsidiaries, with controlling interests in 65 of them, compared to 195 and 30 in Huarong respectively, according to an October report from Financial Regulation & Law. China Orient has 257 subsidiaries.

Bad debt managers have not exploited the offshore bond market as uncertainty hangs over Huarong. The last sale of dollar debt by one of the companies and their units was the China Cinda HK Holdings Co.’s $ 2 billion offer in January.

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