Caixin
Sep 01, 2018 09:41 AM
FINANCE

China Bad-Loan Manager Huarong Posts Big Profit Drop

China Huarong Asset Management Co. Ltd. and its listed subsidiaries reported substantial first-half earnings declines or losses Friday. The reports offered the first glimpse of the scandal-struck state-owned conglomerate’s financials after its former boss was probed for corruption.

China Huarong and its subsidiary Huarong Investment Stock Corp. posted year-on-year decreases in net profit for the first six months, while another subsidiary, Huarong International Financial Holdings Ltd., swung to a net loss.

China Huarong had warned of a substantial profit decline in the first half. The enterprise is one of the nation’s “big four” state-owned bad-asset managers, and its former head is under investigation for what may be the country’s largest financial-sector corruption case since 1949.

The Hong Kong-listed stocks of Huarong and Huarong International plunged by 10% or more Friday. Huarong Investment’s shares were unchanged. The three stocks have lost about half of their value since the scandal involving Chairman Lai Xiaomin was exposed in April.

The parent company posted a 95% drop in net profit in the first half, to 684 million yuan ($100 million), mostly reflecting a large impairment charge to financial assets.

Notably, auditor Deloitte issued an audit report with reservations, saying the company failed to review the potential impact of Lai’s ongoing investigation on the company’s financial statements, including the valuation and recoverability of certain special structured fund investments and loans.

As the largest among the big four bad-asset managers, Huarong’s earnings look especially bleak compared with those of its peer, China Cinda Asset Management Co., another member of the big four. Cinda reported a net profit of 8.49 billion yuan for the first half, down just 0.8% from last year.

For the first six months, Huarong recorded a total of 12 billion yuan as an impairment loss on financial assets, an increase of 156% from last year.

Its subsidiary Huarong Investment logged a relatively smaller decline in first-half net profit. The unit’s earnings fell by 7% to HK$58.5 million ($7.5 million), mainly hurt by decreased fair value of related investment products.

Another subsidiary, Huarong International, which has dubbed itself China Huarong’s first multi-licensed, overseas-listed financial holdings platform, swung to a net loss of HK$1.16 billion from a net profit of HK$584 million.

After the news of Lai’s probe, Huarong International quickly moved to sell its stake in a property project in Hong Kong and raised more than HK$700 million from the sale.

China’s Central Commission for Discipline Inspection, the party’s anti-graft watchdog, announced in April that Lai was placed under investigation for “serious violation of rules and the law.” He was removed from his posts soon after the commission’s announcement.

Investigators found 270 million yuan in cash at several properties owned by Lai, the largest amount involved in any corruption case that has hit China’s financial sector since 1949, sources who attended an internal Huarong meeting earlier this month told Caixin.

Contact reporter Yang Ge (geyang@caixin.com)

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