Six months after Lai Xiaomin was convicted of bribery and executed, the fate of China’s largest bad debt manager, Huarong Asset Management, is unclear and the stakes in Beijing are rising. ..

Huarong Asset Management, one of four public wealth management companies founded in 1999 to pay off banking sector debt after the Asian currency crisis, has been exacerbated since Lai’s death.

The failure to publish financial accounts in 2020 and the uncertainty of 17 trillion RMB ($ 261 billion) assets on the balance sheet led to the sale of a large $ 22 billion dollar-denominated bond by the Group to international investors. He fluctuated.

The outlook for Chinese corporate debt of $ 100 billion, expected this year, injects additional urgency to resolve the future of the group, which is far behind its roots as a strong bad debt manager over the past year. last decade. Make.

“We don’t expect this, but if the situation at Huarong Asset Management leads to default, what does it say about the government’s support for other SOEs? »Charles, director of the rating agency S&P. Chan, said. “If you find that a defect or a restructuring has occurred, you have to check everything. [of them]”.

Concerns about Beijing’s approach to businesses that authorities created after authorities to deal with bad and bad debts have escalated this month. The investigation has started He was appointed Hu Xiaogang, vice president of China Great Wall Asset Management and former head of China Orient Asset Management.

The Great Wall and the East, along with Cinda and Huarong Asset Management, make up the quartet of bad debt managers. Like the bad banks founded in Spain and Ireland after the eurozone crisis, their objective was to contract problematic loans from the banking system. This remains an important feature of the Chinese financial system.

But instead of shrinking as memories of the Asian crisis fade, asset managers have embarked on a bohemian expansion, with four raising more than $ 100 billion in the bond market between 2013 and 2018.…

Everything set their goals beyond China, but Huarong was by far the most aggressive. In 2015 alone, its international wealth increased by more than 300%, according to S&P. That year, it listed part of its Hong Kong business with strategic investments from Goldman Sachs and Warburg Pincus.

Since the company accused Rye, much of the firepower for Huarong’s overseas operations has come from $ 22 billion in dollar-denominated debt raised by the international industry.

CreditSights analyst Jason Tan said, “This ultimately led to the chair’s bankruptcy and the company’s calculation.”

Huarong’s foreign investment has helped Chinese companies access credit on the mainland. The purchase of dollar-denominated debt securities sold by Aluminum Corporation of China in 2016 is one example. Aluminum China is not an economically affected company, but one of the largest producers of metals in the world. Chinese companies frequently issue dollar-denominated bonds via Hong Kong outside of domestic financial markets to stimulate demand from foreign investors.

I also bought bonds for sale by Country Garden, a private real estate developer. Country Garden has become one of China’s most renowned real estate companies in the industry currently under pressure to reduce debt from Beijing. In 2017, developer Zhonghong Holdings will manage Huarong Asset Management $ 449 million stake in U.S. amusement park operator Seaworld Entertainment..

During a period of seemingly unrestrained growth, with assets multiplied by seven between 2012 and 2018, Huarong Asset Management, along with its commitment to real estate development, has its own banks, brokerage firms, insurance and leasing companies. . Creation of a department.

Ronald Thompson, managing director of Alvarez & Marsal Asia, said bad debt managers have turned into “financial supermarkets” during the rapid growth of the country’s financial system.

Huarong’s own expansion beyond its original authority was partially facilitated, as the assumption of the company’s problematic debt ultimately led to the acquisition of ownership of the company.

“Or [in] In the United States, there are high yield bonds, high yield bonds and private equity players, and asset managers play a partial role in China, ”says Thompson.

“If you are the boss of AMC [asset management company] And your future is to close next year as originally planned, ”he added.

In a statement to the Financial Times, Huarong refocused on the core business of asset mismanagement, “resolutely implementing the policies and decisions of the CPC Central Committee, State Council and regulators” since. 2018. ”. ..

Huarong’s dollar debt is trading at a difficult level, so the pressing question for investors and regulators is where reckless growth has left the group’s balance sheet.

According to the 2020 interim report released last August and the latest data available, the Beijing-based company only had half of the assets in the “distressed” segment. The report mentions other assets, including loans and debts to companies in China.

According to CreditSights, China Huarong Asset Management, the industry that issued dollar-denominated debt, had total assets down by a third from 2017 to HK $ 198 billion ($ 25.6 billion) in the first semester 2020. They included equities, convertible bonds. , structured products and over-the-counter derivatives.

Huarong’s overseas ambitions and outcome, while far less flashy, were three private Chinese conglomerates allowed to search the world for trophies before the 2018 government crackdown. The conglomerates HNA, Anbang and Dalian Wanda echoed.

The HNA took years to dissolve and creditors did not file for bankruptcy until January after the court said the once high-profile group was unable to pay its debt.

Huarong Asset Management is expected to play an important role in mainland China, but the next step is in Beijing, especially when domestic credit conditions get even tougher.

“They’re probably trying to figure out what the hole is,” said one Hong Kong investor. “Once you know the size of the hole, you can decide to fill the gap. “