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August 31, 2021

China’s recently rescued bad bank Huarong confirms $16bn loss in 2020

China Huarong Asset Management is currently in talks with investors after revealing a net loss of $15.9bn (RMB103bn) in 2020 and failing to meet regulatory standards on several key measures of strength.

The losses were mainly the result of impairments, the Chinese bad debt manager revealed in its delayed annual results.

Leverage ratio of the company reached 1,333 times by the end of last year.

The group also revealed that indicators such as capital adequacy ratio and leverage ratio failed to reach the minimum regulatory requirements.

“In accordance with regulatory requirements, the regulators could impose a range of restrictive measures on the Group,” the group stated.

The group also looks to offload subsidiaries with non-core business activities in the “near future”.

Notably, the financial services segment of the group includes Huarong Xiangjiang Bank, through which the group carries out its banking services.

As the end of last year, Huarong Xiangjiang Bank’s core tier-1 capital adequacy ratio was 8.6% while its capital adequacy ratio stood at 13.1%.

The group said that all major business indicators of Huarong Xiangjiang Bank “either satisfied or outperformed regulatory requirements”.

In interim results released separately, Huarong reported attributable profit of RMB158m in the first half of 2021.

Huarong was created in the 1990s. Over the recent years, it expanded its remit from being a state-controlled asset management company to other businesses.

However, the group has been grappling with problems off late, with its former chairman Lai Xiaomin found guilty of taking huge bribes, engaging in corruption and bigamy. Xiaomin was executed earlier this year on these charges.

Huarong chairman Wang Zhanfeng said: “Due to the aggressive operation and disorderly expansion of former Party Secretary and Chairman Lai Xiaomin, the Company has badly deviated from its main responsibilities and core business. In 2020, the Company comprehensively reviewed and assessed the risks of operating assets and recognized credit impairment losses and fair value change losses.

“This had a significant impact on the operating results and is a harsh lesson to be learned in the development history of the Company.”

Majority owned by China’s Ministry of Finance, Huarong’s results were delayed by almost five months owing to restructuring uncertainties.

Earlier this month, the group announced a state bailout, unveiling that it will get cash infusion from a group of businesses led by Citic Group.

The firm would receive $7.7bn as part of a restructure and control would transfer to Citic from the Finance Ministry. However, details are still not final.

 

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