June 26, 2022

Huarong Asset Management, China’s government-owned asset manager reported to have received fresh capital worth 42 billion yuan ($6.59 billion) from a state consortium led by Citic Group. The money will be used for restructuring plan.

According to the company, it intends to issue a maximum of 39.22 billion domestic shares on the Hong Kong exchange to the consortium of investors and not more than 1.96 billion shares listed. The consortium consists of Citic Group, China Life Insurance, and China Cinda Asset Management, among others.

In a filing to the Hong Kong stock exchange, the company mentioned that issuance of shares is the only practical measure to solve the capital insufficiency difficulty of the company and to satisfy the regulatory requirement.

Summary of the deal –

• Citic Group under the deal would assume the Chinese government’s controlling stake in Huarong.
• This is a part of the plan by regulators to fold financially troubled state asset managers into financial holding groups.
• Citic Group is scheduled to subscribe not more than 18.82 billion shares in the asset management company.
• While China Cinda mentioned that it would buy a 4.89% stake in Huarong by contributing around 4 billion yuan.

Huarong had missed a March deadline for filing its 2020 earnings, hence sparking a retreat in its U.S. dollar-denominated bonds that later spread to other issuers in China. The asset company is currently one of the four state distressed debt managers and considers China’s finance ministry as its largest shareholder.

Amid a regulatory push to sell non-core assets as part of its business revamp bonds rebounded in August after the state-backed rescue plan, and its divestment deals.

According to reports, the company had earlier mentioned that it would sell its 40.5% stake Huarong Xiangjiang Bank, and 79.9% stake in its financial leasing unit.

And on Tuesday, the company as it continues to recover its credit profile and re-focus on its main bad loan business has been granted approval to raise 70 billion yuan of financial bonds in the interbank market.

In August the company had announced a first-half 2021 profit of 158.3 million yuan ($24.5 million) and around $16 billion loss for 2020.