Huarong posts $ 15.9 billion loss in 2020, reports asset sale

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(Bloomberg) – China Huarong Asset Management Co. confirmed a record loss for 2020 in a long-awaited earnings report and reported a small profit for the first six months of this year, just over a week after to have obtained a government-orchestrated bailout to keep it from the precipice.

The shortfall was 102.9 billion yuan ($ 15.9 billion) for the whole of last year and the profit was 158 million yuan in the first half of this year, the company said in documents filed Sunday in Hong Kong. Huarong recorded 107 billion yuan of write-downs for 2020 and suffered a loss of 12.5 billion yuan on its financial assets. Its key capital level was well below regulatory requirements in June.

After five months of turmoil since delaying its earnings report in March, China’s largest bad debt manager this month secured a bailout from some of the country’s biggest financial firms. His fate had become the biggest test in decades of whether Beijing would still shield state-owned companies from market forces amid renewed pressure from President Xi Jinping to curb debt growth as defaults reached records.

The company announced on Sunday that it plans to divest subsidiaries with non-core activities in the near future in order to increase inflows of internally generated funds and to replenish capital. He did not give more details of his bailout in the report.

Public investors including Citic Group, China Insurance Investment Co. and China Life Asset Management Co. agreed on August 18 to invest new capital in Huarong. The company is reportedly receiving $ 7.7 billion as part of an overhaul plan with transfer of control to Citic from the finance ministry, though details are still being finalized and may change, people familiar with the case.

Huarong has $ 243 billion in different liabilities – including more than $ 20 billion in offshore bonds – and has been the subject of close scrutiny by investors around the world.

Its solvency ratio was 6.32% as of June 30, down from 13.2% at the end of June last year. Chinese regulators require a minimum of 12.5% ​​for bad debt asset managers and a level 1 base ratio of at least 9%.

Last week, Moody’s Investors Service downgraded Huarong’s credit rating and put it on watch for further downgrade, citing deterioration in its capital and profitability. The loss forecast for 2020 “could lead to a failure to meet minimum regulatory requirements for capital adequacy and leverage, and indicate that the company cannot continue to operate without the support arranged by the government.”

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