Huarong finally releases report that stirred debate on financial failure
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Huarong, China’s biggest bad debt manager, has released a long-awaited financial report that outlined a record Rmb103bn ($16bn) loss last year, ending a four-month delay that sparked a debate over Beijing’s approach to corporate failure.
The company, which this month confirmed plans for a bailout from state-backed businesses including conglomerate Citic, said its leverage ratio reached 1,333 times by the end of 2020 as losses wiped out most of its equity.
The belated release of the results, which were initially due in April, came after a chaotic period for a company, which was launched in the late 1990s to help clean up the banking system. Its former chair Lai Xiaomin was executed in January for accepting Rmb1.8bn in bribes after years of expansion.
Last year’s losses were driven primarily by impairments of Rmb108bn, the filings showed, which the state-owned company described as a “painful lesson”. In interim results, it separately unveiled a profit attributable to shareholders of Rmb158m in the first six months of the year.
Wang Zhanfeng, Huarong’s chair, said the company had “badly deviated from its main responsibilities”, blaming the “aggressive operation and disorderly expansion” of Lai, whose execution was an unusually harsh punishment for financial crimes. The company also cited the impact of the coronavirus pandemic in 2020.
Huarong expanded significantly in the past decade both within and outside of China to transform itself into a conglomerate with a range of financial businesses that extended beyond its core remit of managing distressed loans.
It was also a big issuer on dollar-denominated bond markets, where investors and traders have assessed whether Beijing would continue to support the group.
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In April, its perpetual bonds collapsed to levels of 49 cents on the dollar, but they have since recovered to trade close to their face value after the announcement of the bailout plan this month.
Fitch, the rating agency, changed its rating watch outlook for the company to “positive” last week, calling the plan as “a step towards the company alleviating its financial stress amid its expected net loss”.
Huarong also said in its results that it would “dispose of subsidiaries with non-core business activities in the near future to increase internally generated fund inflows and to replenish capital”.
In June, rating agency S&P said that Huarong would need to release its results by the end of August to avoid a technical default on a bond issued by Huarong International, one of its subsidiaries.
The company listed in Hong Kong in 2015 and counts Warburg Pincus, the US private equity firm, as one of its biggest investors. Trading in its shares was suspended in April and will remain so until further notice, the group said.
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