Shares of China Huarong Asset Management Co. slumped as much as 55% in Hong Kong as the troubled distressed-asset manager resumed trading Wednesday following a state-backed bailout.
Beijing-based Huarong , trading for the first time since the company announced roughly $16 billion in losses for 2020, flagged the resumption late Tuesday, saying that its assets have enough value to keep supporting its operations and that its capital adequacy ratio now meets regulatory requirements. Huarong added that it recorded net profit of 1.62 billion yuan (US$254.9 million) in the first half of 2021.
Shares were last down 53% at HK$0.48 by midday.
Trading in Huarong, which is majority-owned by China’s finance ministry, was suspended last April when the company announced a delay in releasing its 2020 annual results. Months later, the asset manager revealed the outsized loss, largely due to writedowns on its assets as it veered into areas far beyond its core business of managing distressed assets.
In November, Huarong unveiled plans for a $6.6 billion capital injection from state-owned financial institutions, as part of a complicated restructuring. It completed share issuances in China and Hong Kong in late December.
Fitch Ratings last month said it was of the view that Huarong’s recapitalization and asset-sale plan will “realign the company towards its core policy role of distressed asset management, reinforcing the government’s incentive to provide support.” Fitch said it would reassess the rating on Huarong upon completion of the plan.
Huarong is the largest of the four state-backed bad-debt managers established in the late 1990s to clean up problematic loans extended by China’s large state-owned banks. The asset manager and its peers buy defaulted or troubled commercial loans and recover money from them, often by auctioning off the distressed debt to investors such as private-equity funds.
In recent years, Huarong expanded its business beyond its original purpose through aggressively raising overseas debt and stepping into securities trading, commercial lending and leasing businesses. Its previous chairman, Lai Xiaomin, in January was handed a rare death sentence after pleading guilty to bribery and embezzlement, and was executed a few weeks later.
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