Bad Debt Dealer Huarong’s Profit Collapses After Corruption Scandal

One of China’s “Big Four” state-owned bad-asset managers has reported that its net profit collapsed last year as it dealt with a corruption scandal that left its former chairman waiting to be tried on corruption and bribery charges.

China Huarong Asset Management Co. Ltd.’s net profit in 2018 plummeted 94.3% to 1.5 billion yuan ($223.3 million), according to the company’s annual report released Thursday. The profit plunge came as Huarong’s revenue fell 16.3% to 107.3 billion yuan, and its total assets shrank 8.6% to 1.7 trillion yuan by the end of the year.

Despite being the largest of China’s four large asset managers, Huarong reported a dismal performance in comparison. Its peer, Hong Kong-listed China Cinda Asset Management Co. Ltd., reported annual net profit of 11.9 billion yuan, though it was down 36.6% from the previous year.

Huarong’s performance was hurt by the corruption scandal of Lai Xiaomin, the company’s former chairman and Communist Party chief, its new Chairman Wang Zhanfeng said in the report.

During Lai’s tenure, Huarong underwent a radical transformation marked by a rapid expansion of its assets, liabilities and business scope. The company grew into a financial holding group that engaged in a range of financial services, including securities, trust, banking and financial leasing.

After Lai’s case emerged, Huarong made attempts to halt many of the business lines and implemented more risk control measures, Caixin learned earlier. Wang said in the annual report that the company will continue to “consolidate the market position of the main business of distressed asset management.” The revenue from such business accounted for 60.4% of the total revenue in 2018, up from 53.8% in the previous year, according to the report.

Huarong’s Hong Kong-listed subsidiaries did not perform well either. Huarong International Financial Holdings Ltd. posted a loss of HK$1.5 billion ($191 million) in 2018, compared with a profit of HK$1 billion in the previous year. Another listed subsidiary, Huarong Investment Stock Corp. Ltd., pocketed HK$72.5 million in profit in 2018, down 73.1% from the previous year.

On Monday, Huarong’s shares in Hong Kong rose by 3.6% to HK$1.73. Huarong International Financial Holdings’ stock climbed 2.6% to HK$0.79 per share, while Huarong Investment’s remained flat at HK$0.435 per share.

Contact reporter Timmy Shen (hongmingshen@caixin.com)