China Huarong’s Worsening Bond Rout Stokes Market Contagion
Growing panic over the financial health of one of China’s largest bad-debt managers spilled into the broader market, as traders circulated a Caixin report that openly considered the worst-case scenario for the company.
China Huarong Asset Management Co.’s $300 million 3.375% bond due May 2022 tumbled 13.1 cents on the dollar to 76.1 cents, while a 5% bond maturing in 2025 fell 9.9 cents to 79.5 cents, Bloomberg-compiled prices show. In a commentary dated Monday, Ling Huawei, managing editor of Caixin Media and Caixin Weekly, discussed the possibility of a China Huarong bankruptcy.
The selloff spread to other high-yield Chinese dollar notes, with some property bonds falling by a record. Asia’s investment-grade dollar debt spreads widened as much as 3 basis points, while a gauge of Asia credit risk widened for a seventh straight day, set for the longest rising streak since 2018.
“Huarong is a $22 billion curve and as a distressed situation it dwarfs anything that we have seen in the Asia credit market before,” said Owen Gallimore, head of trading strategy at Australia & New Zealand Banking Group. “This is a fatal event for a few trading desks and small funds.”
China Huarong’s dollar bonds hit fresh lows Tuesday Bonds linked to the company have plunged this month after China Huarong failed to publish its 2020 preliminary results by the March 31 deadline, with Caixin attributing the delay to plans for a significant financial restructuring. The stock has been suspended in Hong Kong since April 1. The company has until the end of the month to release its final earnings report. China Huarong’s biggest shareholder is the country’s Ministry of Finance.
”Market speculation of a restructuring with haircuts for Huarong International bondholders is heavily damaging investor sentiment,” said Chang Wei Liang, a macro strategist at DBS Bank Ltd. in Singapore. “The continued silence of Chinese authorities on the predicament of a strategic state-owned institution as large as Huarong is also worrisome, as investors had anticipated at least a modicum of reassurance.”
Chinese investment-grade dollar bond spreads widened by as much as 8 basis points, while prices on the nation’s high-yield notes fell as much as 3 cents on the dollar, according to credit traders. The CSI 300 Index of stocks added 0.3%, while the yuan was steady.
China Huarong has been under a shadow since its then-chairman Lai Xiaomin came under investigation in 2018. Under his watch, the company expanded into areas including securities trading, trusts and other investments, deviating from the original mandate of disposing bad debt. Lai was put to death earlier this year for bribery after a brief trial, an unusually harsh sentence for such a crime.
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April 12, 2021 at 10:39PM