China bonds/Huarong: debt manager heal thyself

{"text":[[{"start":12.41,"text":"Beijing set up four state-owned entities to help clean up a banking system weighed down with bad debt in the late 1990s. "},{"start":19.002,"text":"The largest of the four, China Huarong Asset Management, has long benefited from low yields and government support. "},{"start":25.482,"text":"Now the distressed debt manager has become the one to threaten the stability of China’s credit market. "}],[{"start":31.330000000000002,"text":"Huarong’s Hong Kong-listed shares have been suspended since April 1 after it failed to report results for last year by a March 31 deadline. "},{"start":39.497,"text":"Confidence in the debt manager was further shaken by local traders, who circulated a report of the worst-case scenario — a possible bankruptcy. "}],[{"start":48.07,"text":"It would have been easier to uncover the full extent of Huarong’s troubled finances if Lai Xiaomin was still around to question. "},{"start":54.649,"text":"But in January China executed the group’s former chair for bribery. "}],[{"start":59.55,"text":"Panic has been spreading. "},{"start":61.467,"text":"The yield on Huarong’s $300m 3.375 per cent bond due May 2022 soared to a record 23 per cent on Tuesday. "},{"start":70.259,"text":"Spreads on investment-grade dollar bonds issued by Chinese companies widened by as much as 8 basis points. "},{"start":76.252,"text":"High-yield Chinese dollar bonds were also hit. "},{"start":78.919,"text":"The prices for those with issuers seen as risky — developers, for example — fell by record amounts. "}],[{"start":null,"text":"

"}],[{"start":85.72,"text":"Outstanding bonds for Huarong and its subsidiaries stand at about $42bn, of which more than 40 per cent are due to mature by next year. "},{"start":94.149,"text":"Some $22bn are dollar bonds. "},{"start":96.979,"text":"Huarong debt is widely held by global investors, including by BlackRock and Goldman Sachs Asset Management. "}],[{"start":103.61,"text":"Normally, troubled state-owned Chinese companies do not cause jitters for long. "},{"start":108.314,"text":"Huarong’s largest shareholder is China’s ministry of finance. "},{"start":111.919,"text":"But so far the government has remained eerily quiet on what actions it will take, such as support for bondholders. "}],[{"start":118.71,"text":"Unless it intervenes, the sell-off is set to widen. "},{"start":122.16399999999999,"text":"Huarong’s long involvement in the local distressed debt market means its fate is tightly intertwined with local companies and banks. "},{"start":128.607,"text":"Defaults would heighten risks in parts of China’s financial system. "},{"start":132.037,"text":"But broader sell-offs in other Asian markets should be short lived. "}],[{"start":136.53,"text":"Our popular newsletter for premium subscribers Best of Lex is published twice weekly. "},{"start":141.50900000000001,"text":"Please sign up here "}],[{"start":142.88,"text":""}]],"url":"https://creatives.ftacademy.cn/album/001092139-1618356457.mp3"}