Another week of Beijing’s silence on the fate ofChina Huarong Asset Management Co. is stoking renewed volatility in the company’s bonds, as traders juggle competing narratives of the prospect of debt restructuring.
Price swings have intensified in recent days amid a series of media reports on whether the Chinese government will allow Huarong to default, a decision that would break decadesthe assumption that Beijing still stands behind central government-owned corporate debt. Questions have swirled about the ailing debt manager’s financial health since early April, when he missed a deadline to release the 2020 results.
The latest volatility episode started on May 12, after Caixin Media’s WeNewsreported that the authorities urged Huarong to solve his problems on his own. Bonds collapsed again Tuesday after The New York Timessaid the Chinese government is “firmly committed” to ensuring that foreign and domestic bondholders do not receive full repayment of their principal.
Meanwhile, Huarong continued to repay its maturing bonds.on time and said he saw no change of governmentSupport. The company has funding deals with state-owned banks to ensure it can repay its debt at least until the end of August, when the company aims to finalize its 2020 results, people familiar with the subject.told Bloomberg this week. Huarong’s plan to overhaul is complicated, but that doesn’t mean the company is ready to default, Caixinreported Tuesday, citing an anonymous industry insider close to the company.
Through it all, Chinese officials who will ultimately decide Huarong’s fate have remained silent. Beijing has offered few clues about its position since the bond market drama began, other than a briefstatement by the financial regulator last month that Huarong was operating normally and had sufficient liquidity. A finalThe decision on what to do with the business will likely come from Liu He, President Xi Jinping’s economy czar, or perhaps Xi himself.
A resolution could come in late July or early August, said Dan Wang, credit analyst at Bloomberg Intelligence. Huarong has the equivalent of about $ 2.83 billion in offshore and onshore bonds maturing through August, including a dollar note that matures Thursday, according to data compiled by Bloomberg. Huarong already haswired funds to repay the $ 300 million bond, according to a person familiar with the matter.
What Bloomberg Intelligence says
“The story of the NYT came as a surprise to the market because it suggested a Haircut both onshore and offshore holders. The Caixin report is one of the magazine’s first more favorable reports since early April and the change in tone suggests the government and regulators are still working on a resolution.
– Dan Wang, analyst
Chinese state-owned enterprises defaults have increased in recent years, as Xi’s government cut back its support for weaker borrowers to reduce moral hazard, though none of the defaulting companies were. as systemically important as Huarong.
The financial giant owes domestic and international bondholders the equivalent of around $ 41 billion, following an unfortunate expansion under former President Lai Xiaomin, who was executed for crimes including the corruption, in January. Huarong is majority owned by China’s Ministry of Finance and is closely linked to the country’s $ 54 trillion financial industry.
The company’s 5.5% bond due 2025 fell about 3.3 cents on the dollar to 70.8 cents on Tuesday and its 4.5% perpetual rating fell 6.7 cents to 56 cents, according to prices compiled by Bloomberg. Trade was mixed on Wednesday in the early hours of Asia.
The losses have so far had a limited impact on China’s credit market more generally, with yields on top-rated three-year onshore corporate bonds falling to their lowest since July.
– With the help of Ye Xie, Jun Luo, Zheng Li and Tongjian Dong