Bonds of Chinese bad-debt asset management companies (AMCs) China Huarong Asset Management Co (CHAMC), China Cinda Asset Management Co, China Orient Asset Management Co and Great Wall Asset Management dropped further on Wednesday. Ever since Huarong’s delay in filing their results in April, bonds of their peers have trended lower – China Cinda’s 1.25% 2024s, China Orient’s 5% 2024s and Great Wall’s 3.125% 2024s have fallen ~3.5% to 96.93, 108.33 and 102.1 respectively in this time period. Bonds of China Cinda, Great Wall and China Orient were down ~1.5-2% yesterday. The fall occurs a day after sources mentioned that the Chinese finance ministry is considering a plan to transfer its shares in these three into a new holding company. Bloomberg notes that Huarong has about $22bn while the other three AMCs have a combined $28bn in dollar bonds outstanding. “Due to the prolonged delay of Huarong’s 2020 results and increasingly complex restructure potential, investors are increasingly examining exposure to China AMCs,” said Dan Wang, Bloomberg Intelligence analyst.
Separately, S&P affirmed their BBB+ and A2 long term rating and short term ratings on CHAMC and kept them on CreditWatch negative. S&P said it may downgrade CHAMC’s stand-alone credit profile (SACP) by a notch if Huarong’s nonbank operation’s leverage ratio (ratio of interest-bearing debt to adjusted total equity) goes up to near 12x from 8.5x as of June 30, 2020. Also, downgrade pressure could also increase if audited financials show significantly worse asset quality metrics than S&P expects. They added that if Huarong experiences acute liquidity problems, a multiple notch downgrade was possible.
Huarong’s dollar bonds were mixed – its 3.25% 2024s were down 0.8 to 69.5 and their 2.875% Perps were up 2.1 to 69.5.
