Huarong’s Distressed Assets Grow by 28% in First Half

China Huarong Asset Management Co., the country’s largest distressed-debt manager, said it managed 28% more bad and potentially soured loans during the first half of 2017 than it did a year earlier.

Nonperforming loans continue rising in China as the government clamps down on excessive lending while economic growth slows. Beijing has recently stepped up efforts to clean up toxic assets nationally, including allowing some commercial banks to set up their own distressed-debt management units.

Huarong said Wednesday that in response to that policy, it had 807.56 billion yuan ($121.2 billion) worth of distressed assets under management as of the end of June, up from 628.71 billion yuan a year ago.

Asset management companies (AMCs) acquire soured loans from financial institutions through public bidding or private negotiations, usually at a fraction of their original value. To maximize the recovery value of — and thus profit from — those assets, AMCs dispose of them in a variety of ways. Such methods include interim participation in the company’s operations, asset restructuring, debt-to-equity swaps, liquidation and litigation.

During the first six months, Huarong’s pretax profit from managing distressed assets rose a sharp 67% to 14.57 billion yuan from a year earlier. Net gains from asset disposals also jumped to 641.4 million yuan from a mere 21.3 million yuan a year ago.

However, the profit margin of this segment dropped to 41.3% from 47.4% in the same period of 2016.

Huarong has also been diversifying into offering corporate-finance services and nondistressed asset management to reduce risks from concentrating on bad loans. As of the end of June, half of Huarong assets were sour debts.

For the entire company, Huarong’s net profit for the first half rose 20% to 13.36 billion from 11.12 billion yuan a year earlier. The liability-to-total-asset ratio was largely steady, standing at 89.7% as of the end of June compared with 89.4% a year earlier.

Also on Wednesday, Huarong said President Ke Kasheng had resigned effective immediately.

Wang Lihua, an executive director and a vice president of the company, will be the acting president while Huarong searches for Ke’s replacement, Huarong said in a statement.

It didn’t say why Ke resigned, but added: “Mr. Ke has confirmed that he has no disagreement with the Board and there are no other matters related to his resignation that should be brought to the attention of the shareholders or creditors of the Company or The Stock Exchange of Hong Kong Limited.”

Contact reporter Aries Poon (ariespoon@caixin.com)