Huarong repays offshore bond with help from ICBC

Beijing

CHINA Huarong Asset Management Co repaid an offshore bond maturing on Tuesday with funds provided by the nation's largest state-owned bank, people familiar with the matter said, a sign that Chinese lenders are heeding government calls to support the embattled distressed-debt manager.

Industrial & Commercial Bank of China Ltd's Singapore branch gave Huarong a loan to help the company repay its S$600 million bond due on April 27, the sources said.

The support comes after China's financial regulator asked banks to extend loans to Huarong by at least six months to help the company refinance debt, the people said. While news outlets have previously reported aspects of the China Banking and Insurance Regulatory Commission's guidance, investors have been looking for clues as to whether it would apply to offshore debt.

Huarong's offshore bonds tumbled this month after the company missed a deadline to report earnings, fuelling speculation of a looming debt restructuring that has roiled credit markets across Asia. With more than US$20 billion of offshore notes outstanding - including US$3.7 billion due this year - Huarong is one of China's most prolific borrowers in international markets. It's also majority-owned by the country's finance ministry, making it a closely watched proxy of the government's willingness to backstop the liabilities of state-owned companies.

The lack of clarity around Beijing's support led Fitch Ratings to cut its credit rating on Huarong by three levels on Monday, a day after the company said it would miss a second deadline to report its annual results at the end of April. Huarong's dollar bonds due 2022 were indicated slightly higher on Wednesday, with the 3.75 per cent note up 0.2 cent to 81.1 cents on the dollar. The 4.5 per cent perpetual bond was at 65.2 cents, down about 0.2 cent, according to Bloomberg-compiled prices.

Huarong units said earlier on Tuesday that they repaid the Singapore dollar bond along with 960 million yuan (S$196.3 million) of debt also maturing on April 27.

While support from banks may help Huarong avoid a near-term default, it's unclear whether Chinese authorities have decided on a plan to resolve the company's longer-term challenges. Regulators have been largely silent on the issue, saying only that Huarong is operating normally and has ample liquidity.

Outlines of plans under consideration have emerged in bits and pieces via people familiar with discussions at Huarong and within China's government. Bloomberg reported earlier this month that Huarong has drafted an overhaul proposal that would see it offload unprofitable and non-core businesses while avoiding the need for a debt restructuring, though the plan would require approval from Chinese regulators.

Authorities are also said to be mulling a proposal to shift more than 100 billion yuan of assets from Huarong to a unit of China's central bank. Meanwhile, the Ministry of Finance is considering transferring its ownership stake to a unit of the nation's sovereign wealth fund that has more experience resolving debt risks.

Huarong, the nation's largest distressed-debt manager, has financed itself primarily with bank loans and bond issuance. Its borrowings from onshore banks and financial institutions amounted to 766 billion yuan as at June 30, 2020, more than double its total bonds and notes outstanding. About 440 billion yuan of its loans are due within a year, according to its 2020 semi-annual report.

Much of that cash is ultimately funnelled back into state-run banks via Huarong's purchases of non-performing loans - an arrangement that helps the banks clean up their balance sheets and may add to their incentives to keep Huarong operating smoothly. BLOOMBERG