Caixin
Nov 18, 2021 10:06 PM
FINANCE

Exclusive: Citic Group Likely to Become Huarong’s Biggest Shareholder

Huarong’s office building at Beijing Financial Street in June 2020. Photo: VCG
Huarong’s office building at Beijing Financial Street in June 2020. Photo: VCG

Financial giant Citic Group Corp. is likely to become China Huarong Asset Management Co. Ltd.’s largest shareholder, as the Ministry of Finance intends to transfer part of its holdings in the troubled bad-debt manager to Citic in the next few years, sources with knowledge of the issue told Caixin.

Huarong on Wednesday reached agreements to sell shares worth 42 billion yuan ($6.6 billion) to five strategic and financial investors, including Citic, the company said in a filing to the Hong Kong Stock Exchange (HKEX).

Once the share sale goes through, the Ministry of Finance would remain the largest shareholder with a 27.76% stake, followed by Citic with 23.46%, the filing showed.

However, the ministry plans to transfer part of the stake it owns to Citic in batches in the coming years, making Citic Huarong’s largest shareholder, the sources said. Such an arrangement was meant to comply with HKEX rules to prevent the ownership of a listed company from changing after a sale of new shares, they said.

The other four investors are China Insurance Investment Co. Ltd., China Cinda Asset Management Co. Ltd., China Life Insurance (Group) Co., and ICBC Financial Asset Investment Co. Ltd., according to the filing. After the deal, China Insurance Investment would hold a 18.08% stake in Huarong, while the other three would each hold less than 5%.

The announced list of investors is slightly different from those Huarong cited in August. ICBC Financial replaced Sino-Ocean Capital Holding Ltd. in the final group of investors.

The new shares will be priced at 1.02 yuan apiece. Huarong said it will use the funds to supplement core tier-one capital.

The share sale plan marks a step forward in the long-discussed restructuring to rescue the debt-laden state-owned financial conglomerate from the verge of collapse. It came days after Huarong won regulatory approval to sell bonds to raise as much as 70 billion yuan.

The bond sale was part of a package of measures to raise capital and sell assets to pay down the company’s debt and strengthen its balance sheet.

Huarong reported a net loss of 102.9 billion yuan in 2020 and had borrowings of 782 billion yuan at the end of June this year, with 578 billion yuan of the total coming due within a year. It had a further 285 billion yuan of outstanding bonds and notes, with 107.5 billion yuan due within a year. Its liabilities amounted to 96% of total assets at the end of June. The company has so far repaid all its bonds and interest on time.

Contact reporter Han Wei (weihan@caixin.com) and editors Bob Simison (hello@caixin.com) and Michael Bellart (michaelbellart@caixin.com)

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