China’s Huarong likely to receive extraordinary government support: S&P

This also bodes well for its overseas bond issuer Huarong International.

Embattled financial institution China Huarong Asset Management (CHAMC) and its subsidiaries will very likely receive extraordinary government support, according to S&P Global Ratings.

S&P believes that the authorities could be taking steps to mitigate relevant systemic risks.

“This includes the plausible reported development of Chinese banks maintaining their funding facilities with CHAMC, and further government efforts are possible,” S&P said, adding that media reports have claimed that local regulators had coordinated a number of banks "not to rescind loans" on related loans of CHAMC and prepared well to support.

This expected support also bodes well for overseas bond issuer Huarong International. S&P said that Huarong International is a core subsidiary of CHAMC, and that any potential extraordinary support from the government will be indirectly available to the company if needed.

CHAMC may extend direct liquidity support or indirect liquidity support to Huarong International through the group's relationships with local financial institutions, the ratings agency added.

S&P has, however, put the asset management firm on a credit watch with negative implications, reflecting continued uncertainties over CHAMC's core credit risk metrics and how the relevant transaction would affect the group following the prolonged delay in the release of its 2020 earnings.

The state-owned asset management firm needs to pay back reportedly $41b borrowed on bond markets. On 3 June, the firm repaid a $900m bond right on time, and another $78.3m domestic bond was repaid in the weekend before that, according to separate reports from Nikkei and Bloomberg. But Nikkei reports that the prices of its bonds due later are trading at prices that suggest investors are still seeing a high chance of default.

“So far, CHAMC has maintained its domestic and overseas public debt payments on schedule,” S&P reported.

CHAMC previously announced that from 1 April to 20 May, the company and its subsidiaries had redeemed 25 domestic and foreign bonds due on schedule and in full: two overseas bonds with an amount of $600m and $300m respectively, and 23 domestic bonds—including deposit certificates of Huarong Xiangjiang Bank—with a total amount of about $2.95b (RMB18.87b).