Huarong Reports $15.9bn Loss Warning; To Get State-led Bailout; No Plans to Restructure Debt

This site uses cookies to provide you with a great user experience. By using BondbloX, you accept our use of cookies.

August 19, 2021

China
Investment Grade Bonds

China Huarong came out with a profit warning and a press release on Wednesday, in an update regarding its 2020 financial results that investors have been keenly awaiting since March. Below is a brief of the talking points and details offered by Huarong as mentioned on their website.

Talking Points	Description
Profit Warning (Jan-Dec 2020)	2020 Net loss of CNY 102.904bn ($15.9bn) vs. CNY 1.424bn ($220mn) profit in 2019
Reasons for Losses	Provision for impairment loss on disposal of Huarong Overseas Chinese AMC Provision for Credit impairment losses due to non-performance on contracts by customers due to Covid-19 Impairment losses on exposure of asset management and investment subsidiaries deteriorated Former Chairman Lai Xiaomin’s disorderly expansion and radical operations
Operating Status	Operating normally Implemented capital replenishment plan and potential strategic investment Promoting risk reduction and controls, better corporate governance
Bond Payments and Liquidity Impact	Sufficient liquidity, controllable liquidity risks Arrangements and preparations have been made to redeem bonds in the future No plans to restructure debt
Asset Quality after Large Provisioning	Currently meets IFRS No. 9 Standards Credit impairment and fair value losses have strengthened financial basis for disposal of risky assets
Next Steps	Chemical insurance disposal collections, tap value of stock assets, speed up disposal and reduce ultimate loss
Strategic Investment and Business Strategy	Signed investment agreements with China CITIC Group, China Insurance Investment Co., China Life AMC, China Cinda AMC and Sino-Ocean Capital Holdings Co. They will subscribe to newly issues shares by Huarong Potential strategic investment is in progress and will supplement capital Focus on core business – Expand restructuring of problematic enterprises; Divestiture of SOEs’ main and auxiliary businesses; Rescue large scale entities; Urban renewal; Acquire defaulted bonds, Bankruptcy and reorganization

“This is clearly a good signal that SOE support is still firmly in place when financial stability is at risk… For financial systemically important issuers, I think the notion of being too big to fail holds more than for property developers, for example”, said Kamil Amin, a credit strategist at UBS Group AG, referring to state- owned enterprises.

Huarong’s dollar bonds rose yesterday by 4-6%. Its 3.375% 2030s were up 6.2% to 80.5 and its 4% Perps were up 5.8% to 85.8.

For the full story, click here