China Huarong returned to profit in 2021 after state bailout

[HONG KONG] China Huarong Asset Management said it returned to profit last year after revamping its sprawling businesses and receiving a US$6.6 billion government-orchestrated bailout.

The state bad-debt manager reported a preliminary net income of 370 million yuan (S$79 million) for 2021, compared with a record loss of 102.9 billion yuan a year earlier, according to an exchange filing Monday (Mar 21). Huarong is scheduled to release audited full-year results next week.

The Beijing-based company said its proactive adjustment of business strategy and accelerated cash recovery helped boost revenue last year, while significant losses from fair value changes in its legacy assets and credit impairment losses were already booked in 2020.

Shares of Huarong gained 4.2 per cent as of 9.50 am in Hong Kong. Still, the company's stock has slumped more than 60 per cent since it resumed trading in early January, and investors remained jittery and divided over the industry's long-term growth prospects. The yield gap on Huarong's 3.375 per cent note due 2030 widened about 25.2 basis points this month.

Created following the Asian financial crisis in the late 1990s to safeguard China's state-owned banks, Huarong and its peers expanded into everything from insurance and leasing to brokerage and trust through cheap borrowing from onshore and offshore markets, and turned into major shadow lenders themselves.

Huarong roiled Asian credit markets last year as it failed to release its annual report on time, eventually revealing a massive loss for 2020. Then Huarong received a US$6.6 billion equity injection from a group of state-backed investors led by Citic Group and embarked on disposals of non-core assets to pare back its sprawling empire. BLOOMBERG