Chinese bad-debt assets management company Huarong just showed the world how the Beijing authorities save troubled state-run companies that it deems too big to fail.
China’s top distressed assets manager, state-owned China Huarong Asset Management Co., said on Aug. 19 that five state-owned financial institutions would invest in it after the company announced a net loss in 2020 of 102.9 billion yuan ($15.84 billion) late Wednesday.
In the same announcement, the Beijing-based company listed its debt-to-assets ratio as 90.3 percent at the end of June 2020, with total assets valued at 1.73 trillion yuan ($266.6 billion) and total debt at 1.56 trillion yuan ($240.7 billion).
Despite being in such a poor financial status, Huarong said it has no plans to restructure its debt. It said the bailout was from five state-run financial companies: CITIC Group, China Insurance Investment Co., China Life Insurance Assets Management Co., China Cinda Asset Management Co., and Sino-Ocean Capital Co.
Huarong, majority owned by the Chinese Ministry of Finance, is the largest manager of nonperforming loans and other bad debt in China. On April 12, Chinese media Caixin Weekly reported that Huarong might apply for bankruptcy protection.
Bailout
“It’s a thunder which shocks the sky!” Chinese media described the 2020 financial report that Huarong released on the evening of Aug. 18, which should be released on April 1. “Over 100 billion valued huge losses in 2020!”
The company then held a press conference on Aug. 19 to announce the state-led bailout.
“[The five state-owned financial companies] will make strategic investments in our company in the form of purchasing newly issued shares. These strategic investments, once implemented, will effectively supplement our company’s assets,” Huarong’s spokesperson said.
Bloomberg quoted people familiar with the matter that the bailout might be about 50 billion yuan ($7.7 billion).