Huarong to Restructure, Exit Units in Downsizing Push

(Bloomberg) — China Huarong Asset Management Co., the country’s bad-debt manager which has roiled markets with doubts about its future, will exit one unit and restructure another to focus on its core businesses as it seeks to shore up its finances.

Huarong plans a public transfer of its 70% equity in Huarong Consumer Finance to external parties, it said Monday in a Hong Kong stock exchange filing. The state-owned company also intends to negotiate with the main institutional creditors of Huarong Trust’s outstanding debt to complete a “debt-to-equity swap and equity transfer,” it said.

Huarong’s shares have been suspended since it missed a deadline to report 2020 results at the end of March, kicking off big swings in the company’s bonds and speculation about its future. The embattled conglomerate has been looking to sell nearly all of its units outside of distressed debt as part of a government-approved downsizing plan to bolster its finances, people familiar with the matter said. Huarong is viewed as an important test of Beijing’s willingness to backstop government-owned borrowers amid a record wave of defaults.

The ruling Communist Party has long put a premium on financial stability, but it also increasingly wants to improve the pricing of risk in local credit markets and wean investors off the assumption that overextended companies will always be bailed out.

The moves are intended to meet regulatory requirements on gradually exiting noncore businesses, according to the filing. The initial listing price of the 630 million shares it holds in Huarong Consumer Finance will not be lower than the asset valuation results filed with the Ministry of Finance of the People’s Republic of China, Huarong said.

Huarong’s board also proposed changing the use of about HK$3 billion ($386 million) of proceeds raised from its 2015 initial public offering to provide capital contribution and fund support to major subsidiaries, according to a separate statement.

Shareholders will vote on the proposals Aug. 17 at an extraordinary general meeting.

Huarong is expected to report its overdue 2020 financial results before the end of this month, people familiar with the matter said. The company has continued to repay maturing notes on time and reached agreements with state-owned banks to ensure it can meet obligations through at least the end of August.

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