BEIJING – China Huarong International Holdings, the key offshore financing arm of the nation’s embattled distressed loan manager, said it returned to profit in the first quarter and has laid a “solid” foundation for transformation as concerns persist over its ability to repay debt.
The unit, which issued or guaranteed most of China Huarong Asset Management’s US$22 billion (S$29 billion) in dollar bonds, will focus on cutting risk exposure and ensuring liquidity, it said in a statement posted on its WeChat account late Tuesday (April 20). All its operating indicators are meeting targets, the company said after holding a meeting on Monday to discuss first quarter operations.
The firm’s dollar bonds jumped early on Wednesday before pulling back. Its 5 per cent dollar bond due 2025 was up 0.3 cent on the dollar to 82.3 cents and its 4.5 per cent perpetual note rose 0.5 cent to 73.9 cents as of 10.32am in Hong Kong, Bloomberg-compiled prices show.
Concerns about China Huarong’s financial heath and a pending restructuring have fueled a sharp sell-off in the company’s debt and spread to the offshore bonds of its peers, stoking fears of market contagion. A potential restructuring or default for the bad-debt manager would be China’s most consequential since the late 1990s. Any signs Beijing is rethinking its support for a central, state-owned firm like China Huarong would have deep repercussions for the broader dollar bond market.
The company is majority owned by China’s Ministry of Finance and is deeply intertwined with the nation’s US$54 trillion financial industry.
The firm’s dollar bonds sank on Tuesday after Reorg Research reported regulators are considering options for the company that include restructuring the debt of Huarong International. The parent intends to retain its offshore unit as part of an overhaul plan to boost profitability and offload non-core assets, people familiar with the matter had said previously.
The bond declines snapped a three-day rally that accelerated on Friday when China’s financial regulator said that the bad-debt manager was operating normally and had ample liquidity. The statement, made after a regular briefing in Beijing, were the first official comments since the company jolted Asian credit markets by missing a March 31 deadline to report preliminary 2020 results.