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

by | Aug 19, 2021 | China, Investment Grade Bonds

Huarong

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

Related posts:

  1. Huarong’s Dollar Bonds Rally; Long Tenor Up ~30%, Short Tenor Up 10-15%
  2. Huarong Downgraded Three Notches To BBB By Fitch
  3. Huarong’s Bonds Move Lower With Onshore Bond Liquidity Drying up
  4. Huarong Repays $400mn July Bond
Show Buttons
Hide Buttons