Huarong Securities Wires Funds for Local Bond Due Sunday

(Bloomberg) -- China Huarong Asset Management Co.’s onshore securities unit has wired funds to repay a local bond maturing Sunday, according to people familiar with the matter.

Huarong Securities Co. transferred the money to China Securities Depository and Clearing Corp. for its 5.8% yuan bond that matures April 18, the people said, asking not to be identified because they aren’t authorized to speak publicly. The note has 2.5 billion yuan ($383 million) outstanding, Bloomberg-compiled data show. Bondholders are typically paid Monday when local bonds mature on a weekend.

The payment is one of several near-term deadlines being watched closely by investors as they try to discern whether China Huarong will meet its obligations amid a wide-ranging overhaul. While the onshore debt payment is a positive development for bondholders, it doesn’t do much to provide clarity on whether China Huarong will fully repay its offshore notes.

The embattled bad-debt manager, which delayed its annual earnings report due at the end of last month, has so far been quiet on details of its overhaul plans. The uncertainty has fueled a sharp selloff in the company’s offshore bonds and stoked fears of market contagion.

China Huarong has said it has access to liquidity and is making payments on time, but bond prices suggest investors are bracing for a potential debt restructuring that would be the nation’s most consequential since the late 1990s. The company is controlled by China’s Ministry of Finance and is deeply intertwined with the nation’s $54 trillion financial industry.

Reports Thursday that China Huarong has prepared funds to pay a S$600 million ($449 million) bond due April 27 helped boost prices of its offshore debt from record lows. The company’s 5.5% bond due 2025 continued to rise Friday morning, climbing 2 cents on the dollar to 70.8 cents, Bloomberg-compiled prices show.

The note was little changed following news of the Huarong Securities local bond payment. That partly reflects the particular vulnerabilities of China Huarong’s offshore bonds, which are mainly issued and guaranteed by a separate overseas unit and hold so-called keepwell provisions -- a type of credit protection that is only starting to be tested in court.

China Huarong and its subsidiaries need to repay or refinance some $7.4 billion of local and offshore bonds this year, including the bonds due in April.

The company had the equivalent of $3.4 billion worth of deposits at the central bank as of June 30, largely held in mandatory reserves, according to its latest interim report. Only $84 million was readily available for daily operations, the report shows. The plunge in China Huarong’s dollar bonds makes raising cash in the offshore market highly unlikely for now.

In an emailed response to questions from Bloomberg, the company this week said it has “adequate liquidity” and plans to announce the expected date of its 2020 earnings release after consulting with auditors. China Huarong and Huarong Securities didn’t immediately respond to requests for comment on Friday.

China Huarong has been under a shadow since its then-chairman Lai Xiaomin was investigated in 2018. Under his watch, the company expanded into areas including securities trading and trusts, deviating from its original mandate of disposing bad debt. Lai was put to death earlier this year for bribery after a brief trial.

Here are some key events to watch on Friday:

• Xiao Yuanqi, vice chairman of the banking and insurance regulator, will hold a 3 p.m. press conference in Beijing to discuss the industry’s first quarter performance.
• China Orient Asset Management Co., a smaller rival of Huarong, is scheduled to release its closely watched annual report on the distressed asset industry. The report, based on a survey of bankers and other professionals, provides insight into current conditions and the industry’s outlook for the market. A Huarong senior executive is set to speak at an event to discuss the findings from 2 p.m. in Beijing, according to an invitation. There will be no video streaming of the event or phone dial-in.
• China’s 50-odd local bad-loan management firms are scheduled to convene with financial regulators in an annual closed-door meeting, according to a notice seen by Bloomberg.

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