Huarong repays offshore bond with help from public bank
BEIJING (April 27): China Huarong Asset Management Co repaid an offshore bond maturing Tuesday with funds provided by the country’s largest state-owned bank, sources familiar with the matter said, a sign that Chinese lenders are responding to government appeals to support people in difficulty. -debt manager.
The Singapore branch of the Industrial & Commercial Bank of China Ltd has granted a loan to Huarong to help the company repay its S $ 600 million (US $ 452 million) bond due April 27, said people, asking not to be identified when discussing private information.
The support comes after the Chinese financial regulator asked banks to grant loans to Huarong of at least six months to help the company refinance the debt, people said. While news outlets, including REDD, have previously reported aspects of the China Banking and Insurance Regulatory Commission guidance, investors have been looking for clues as to whether this would apply to offshore debt.
Huarong’s offshore bonds fell this month after the company missed a deadline to report profits, fueling speculation about an impending debt restructuring that rocked credit markets in Asia. With more than $ 20 billion in offshore banknotes in circulation – including $ 3.7 billion this year – Huarong is one of China’s most prolific borrowers in international markets. It is also majority owned by the country’s finance ministry, making it a closely watched indicator of the government’s willingness to guarantee the liabilities of state-owned enterprises.
The lack of clarity around Beijing’s backing led Fitch Ratings to cut its credit rating on Huarong by three levels on Monday, a day after the company said it would miss a second deadline to release annual results at the end of the month of April. Huarong’s 3.75% bond due 2022 fell 1.4 cents on the dollar to 80.4 cents at 7.15 p.m. in Hong Kong. Its 4.5% perpetual bond sank 6.2 cents to 64.5 cents, according to prices compiled by Bloomberg.
ICBC declined to comment. The CBIRC and Huarong did not immediately respond to requests for comment. Huarong’s units said earlier on Tuesday that they had repaid the Singapore dollar bond along with 960 million yuan (148 million US dollars) of debt also maturing on April 27.
While support from the banks may help Huarong avoid a short-term default, it is not known whether Chinese authorities have decided on a plan to address the company’s long-term challenges. Regulators have remained largely silent on the matter, saying only that Huarong is operating normally and has sufficient liquidity.
Outlines of the plans under consideration emerged in bits and pieces through people familiar with the discussions in Huarong and within the Chinese government.
Bloomberg reported earlier this month that Huarong had drafted a review proposal that would allow it to offload unprofitable and non-core businesses while avoiding the need for debt restructuring, although the plan would require the approval from Chinese regulators.
The authorities are also considering a proposal to transfer more than 100 billion yuan of assets from Huarong to a unit of the Chinese central bank. Meanwhile, the finance ministry plans to transfer its stake to a unit of the country’s sovereign wealth fund that has more experience in resolving debt risks.
Huarong, the country’s largest troubled debt manager, has financed itself primarily through bank loans and bond issues. Its borrowings from onshore banks and financial institutions stood at 766 billion yuan as of June 30, more than double its total bonds and notes in circulation. About 440 billion yuan of its loans are due within a year, according to its 2020 semi-annual report.
Much of this liquidity is ultimately redirected to state-owned banks via purchases of non-performing loans by Huarong – an arrangement that helps banks clean up their balance sheets and can add to their incentives to keep Huarong in good working order.
Chinese banks got rid of a record 3 trillion yuan in NPL last year, nearly a third more than in 2019. The CBIRC said this month that banks should tackle even more degraded credit in 2021.