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Huarong Asset Management, China’s largest troubled debt investor, has suffered its first downgrade of its credit rating by an international agency in weeks in a brutal sale of the group’s bonds under pressure.
The company, which is majority owned by China’s finance ministry and has about $ 22 billion in dollar-denominated debt, has come under heavy scrutiny as it has repeatedly delayed the release of its financial results due to to 2020.
Fitch Ratings advanced Monday down Huarong’s issuer rating from A to triple B, its lowest investment grade and a higher level of rubbish. The agency said it “believes the government sponsor’s indication of support has not been so quick” a day after Huarong, which has assets of about $ 1.7 million ($ 262 billion), confirmed it would be missing. a second deadline to report in late April. .
Uncertainty about Huarong ‘s financial health has also been heightened by the execution of its former president, Lai Xiaomin, in January for crimes that included bigamy and abuse of power to allocate credit.
The delay in results, along with reports of a possible restructuring, has sparked a trigger heavy falls in Huarong bond prices and forced investors to reassess the likelihood of government support for the business and other state-linked Chinese issuers in international debt markets.
Huarong said the notification had to be delayed so he could complete a transaction without specifying details. This explanation raised concerns about the quality of its assets and the business activities of former President Lai.
Huarong shares have been suspended in Hong Kong since early April and trading in its bonds has been volatile. On Tuesday, a Huarong bond maturing in 2022 was trading at 85 cents, above the lows of 67 cents in mid-April.
The company has become a focal point for broader discussions on Beijing’s support for its companies in the offshore bond markets, as well as on the health of the Chinese financial system. Brad Tank, Neuberger Berman’s director of fixed-income investments, said in a note that the government is likely to “devise a smooth landing.”
“As a huge owner of troubled assets at the heart of an economy that is likely to experience an increase in delinquent lending in the coming months, we believe Huarong’s political importance is too high for the government to allow doubts about its stability.” added.
Huarong is one of four bad debt managers trained as part of a cleanup of China’s banking system after the Asian financial crisis of the 1990s. It has since evolved into a large financial conglomerate with a number of subsidiaries.
Other Western rating agencies have issued warnings about Huarong in recent weeks, but had stopped down.
This month, China Chengxin Credit has changed Huarong’s outlook to “negative”, Citing concerns about declining profitability and high debt levels, but maintained a triple A rating for the company.
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