China Huarong Asset Management, the country’s largest distressed-debt investor, has issued a profit warning on soaring credit writedowns and property market jitters less than a year after a $6.6 billion restructuring dollars led by the state.
Credit impairments “have increased significantly” in the first six months of this year, the company said in a filing on Tuesday evening, as it warned of a net loss of Rmb 18.9 million ( $2.8 million) for the first half of 2022.
The company attributed the loss to “the impact of capital market volatility and a slowdown in the real estate market”, adding that the recurrence of Covid-19 cases, geopolitical conflicts and pressure on the economy were also at risk. blame.
Huarong, one of China’s ‘big four’ asset management firms, needed a government-orchestrated bailout last year after delaying disclosure of a $16 billion loss for months. dollars.
The company now counts public investment firm Citic Group as its biggest shareholder and is divesting its non-core business units including banks, brokerage, trusts and consumer finance entities, as regulators urge big AMCs streamline their operations to reduce financial risk.
In a separate filing on Tuesday, Huarong said it plans to transfer a 76.8% stake in Huarong Trust to the China Trust Protection Fund for around Rmb6.15 billion.
Investors are divided on the long-term prospects for Huarong and China’s troubled debt industry.
The latest earnings warning added to concerns about major asset managers’ exposure to cash-strapped property developers through their restructuring activities for struggling companies. More than half of Huarong’s restructuring business assets were related to the real estate and construction sectors at the end of 2021, according to company filings.
That level is about the same at smaller rival Cinda Asset Management, which issued a profit warning in July that said its six-month profit would fall 30-35%, citing “certain financial assets measured at cost depreciated held by the company are under greater pressure.
“While most of these credit exposures are project-based and well-secured with low loan-to-value ratios, they are vulnerable to a slump in home sales and a decline in home prices,” the analysts said. from Moody’s Investors Service.
But Huarong remains optimistic about the company’s prospects under Citic’s leadership.
A person familiar with the company said the past six months had “laid a solid financial foundation for further disposals of its risky assets” despite the loss.
Huarong has lined up troubled assets worth Rmb 100 billion for resolution, the person added, which could help the company’s future cash returns.
To show his determination to return to his core business, Huarong said he would “do everything possible” to separate risks, resolve them and ease the difficulty of real estate-related projects, according to his documents.
Additional reporting by Edward White in Seoul