China Huarong Asset Management Company (Huarong AMC) was downgraded to Baa3 from Baa2 due to deterioration in profitability, capital and asset quality in 2022. Huarong AMC reported a net loss of RMB 27.6bn ($4bn) in 2022 reflecting weakness in risk management, a “key driver” to its downgrade. Moody’s expects elevated impairment losses over the next 12-18 months. This is expected to continue straining its profitability. Besides, the rating agency also expects continued pressure on Huarong AMC’s asset quality and provision coverage level for impaired assets. They added that barring any equity injection, the company’s CET1 capital may be under high pressure over the next 12-18 months. With the AMC’s large credit exposures to property developers and other corporate borrowers, asset quality will continue to be strained.
Huarong’s dollar bonds were trading stable – its 4.25% Perp was at 82.5, yielding 12.8% to call.