China Huarong, which has not released its 2020 annual report, issued a profit warning with a pre-loss over 100 billion yuan.
On August 18, China Huarong (HK.02799) issued two announcements, "Inside Information on Potential Strategic Investment" and "Profit Warning".
"Profit Warning" shows that China Huarong's 2020 operating results will suffer losses, and the net loss attributable to the company's shareholders is expected to be RMB 102.903 billion.
In 2019, the net profit attributable to the company's shareholders was RMB 1.424 billion.
The aftershocks of the Lai Xiaomin case are still there, and a huge loss of 102.9 billion yuan is expected last year
China Huarong, a former “star” in the non-performing asset industry, once had a net worth of 182.6 billion yuan (2017).
Since the case of the former chairman Lai Xiaomin in 2018, China Huarong’s hidden problems have been exposed. Not only has it bid farewell to the rapid expansion, but now its stock price has plummeted and suffered a huge loss of hundreds of billions of dollars.
Regarding the reasons for the loss, China Huarong said that in 2020, the former chairman of the board of directors Lai Xiaomin will hear and pronounce the case of bribery, corruption, and bigamy. China Huarong will continue to clean up and dispose of risky assets caused by radical operations and disorderly expansion during his tenure. At the same time, the market impact caused by the new crown virus pneumonia epidemic has led to a decline in the ability of some customers to perform, and the quality of some assets accelerated in the current period.
A spokesperson for China Huarong News stated that the company conducted a comprehensive review, evaluation and impairment test on risky assets, and confirmed credit impairment losses and losses from changes in fair value during the current period, which had a very significant impact on operating results.
He also cited three major reasons for the loss:
One is to conduct an impairment test on the centralized disposal of stock risk assets.
On the basis of the integration of overseas business in 2019, Huarong Overseas Chinese Asset Management Co., Ltd. (hereinafter referred to as Huarong Overseas Chinese) integrated part of the stock assets of branches and subsidiaries within China Huarong Group, conducted centralized management and disposal, and completed Huarong The approval of the project for the transfer of overseas Chinese equity was announced on April 8, 2020, and the announcement of the potential sale was announced, but by the end of 2020, the transfer failed to be implemented as planned.
Huarong Overseas Chinese conducted a comprehensive review and evaluation of centralized management assets, and accrued credit impairment losses and fair value changes losses.
The second is to prudently assess the credit impairment loss for the current asset risk.
The rapid growth of acquisitions and restructuring projects and fixed income projects from 2015 to 2017 will intensively expire in 2020.
The historical reasons for the formation of assets are intertwined with the current market impact, superimposed on the severe impact of the new crown epidemic and market "explosion" events, and the ability of customers to perform is greatly affected, and the quality of related assets is also under pressure compared with the previous period.
After a comprehensive review and assessment of risks, credit impairment losses have been accrued.
Third, the risks of some subsidiaries have impacted the group's operating performance.
The exposure of underlying asset risks in the asset management plans of related financial services subsidiaries accelerated.
The risk assets of some subsidiaries in the asset management and investment segment have deteriorated.
After a comprehensive review and assessment of risks, this part of the subsidiaries has accrued credit impairment losses and losses from changes in fair value.
A spokesperson for China Huarong said that credit impairment losses and losses from changes in fair value have been confirmed in 2020, which has consolidated the value of assets and strengthened the financial basis for risky asset disposal.
In the next stage, Huarong will continue to carry out liquidation and recovery, tap the value of stock assets, seize market opportunities and speed up disposal, and make every effort to reduce the ultimate loss.
Intend to introduce 5 strategic investors including CITIC Group, no debt restructuring plan
According to "Inside Information Potential Strategic Investment", on August 18, China Huarong and China CITIC Group Co., Ltd., China Insurance Investment Co., Ltd., China Life Asset Management Co., Ltd., China Cinda Asset Management Co., Ltd., and Sino-Ocean Capital Holding Co., Ltd. has signed an investment framework agreement, and the five companies intend to make strategic investments by subscribing to the newly issued shares of China Huarong.
A spokesperson for China Huarong said that the framework agreement is not a binding formal share subscription document.
The work related to the introduction of strategic investment is in progress. It is planned to introduce multiple investors to increase the company's capital through the issuance of new shares, which only involves capital restructuring, and there is no plan to carry out debt restructuring.
Since 2020, Huarong has "running" to lose weight, and has successively merged and merged non-gold companies that are not the main business and have no advantages.
Since the beginning of this year, China Huarong has previously announced that it intends to transfer the equity of Huarong Trading Center and Huarong Consumer Finance, and reorganize the equity of Huarong Trust. In this regard, a spokesperson for China Huarong’s press said that the company intends to transfer Huarong Trading Center and Huarong Consumer finance equity and the reorganization of Huarong Trust’s equity are specific measures to implement regulatory requirements and highlight the main business of non-performing assets, and are normal equity transfer behaviors that steadily promote institutional slimming.
The transfer of the above-mentioned subsidiary equity has a positive and positive impact on the company's operations.
"At present, the above-mentioned subsidiary equity transfer or restructuring projects are in progress. In accordance with the requirements for the return of supervision to the main business, Huarong is also studying the optimization and integration plan of related subsidiaries that are not the main business, without advantages, and without business synergy, and follow-up If there is substantial progress, it will be announced in a timely manner in accordance with the principle of information disclosure." China Huarong News spokesperson said.
Where is the way forward
Since Huarong’s delay in releasing its 2020 annual report, it has caused market shocks and related bond prices have fluctuated significantly.
A spokesperson for China Huarong said that Huarong has always performed its debt repayment obligations in a responsible manner.
From April 1 to August 18, China Huarong and its subsidiaries have fully redeemed a total of 94 domestic and foreign bonds due on schedule, with a total amount of 63.344 billion yuan.
"The company's current financial situation is good, and proper arrangements and adequate preparations have been made for the redemption of bonds due in the future." A Chinese press spokesperson said.
Regarding the future business development strategy after the introduction of strategic investors, a spokesperson for China Huarong said that in the future, China Huarong will resolutely implement the central financial work plan, based on the guidance of the Party Central Committee, the State Council, major shareholders, and regulatory agencies. The functional positioning of asset management companies, insists on returning to main responsibilities and main businesses, accelerates business transformation, serves the needs of national development strategy, uses "investment + investment banking" means, vigorously expands the reorganization of substantive problems, and actively carries out the divestiture of state-owned enterprises' main and auxiliary businesses and large-scale Businesses such as the bailout of entity companies, urban renewal, default bond acquisition, bankruptcy reorganization, and risk disposal of high-risk small and medium-sized financial institutions.
Huang Jiacheng, managing director of Invesco and head of fixed income in the Asia-Pacific region, previously analyzed and pointed out that his overall view of the Huarong incident was relatively optimistic.
Huarong’s assets are still valuable, but it will take time for these assets to fully demonstrate their value.
The Huarong incident may continue to ferment in the second half of the year.
Because from the price point of view, the price of Huarong's short-end bonds has remained at a relatively high level.
If the overall panic and emotions are repaired and some positive news is gradually released, the price will slowly repair.
China Huarong is one of the four major asset management companies (AMC) approved by the State Council at the end of the last century, and it is still directly controlled by the Ministry of Finance of China.
After more than 20 years of development, Huarong has gone from being primarily responsible for acquiring and disposing of non-performing loans from large state-owned banks to integrating various financial licenses.
Huarong's 2020 interim report shows that the company's total assets are 1.7 trillion yuan, ranking first among the four major AMCs.
The Paper Journalist Jiang Mengying