Debt from one of China’s biggest asset managers has plunged in value, sending tremors through the market for U.S. dollar bonds of Chinese companies.
The selloff in bonds issued by China Huarong Asset Management Co., a giant state-owned financial institution, came after the company missed an end-March deadline to release its 2020 financial results. Investors dumped its bonds, sending some of their prices down to as low as 60 cents on the dollar, according to Tradeweb, indicating they see a high likelihood of default.
Defaults by state-backed Chinese companies have become more common in recent years, as China has tried to dispel the idea that it will always make creditors whole. Investors are now grappling with the possibility that this new approach could extend to a company as large and important as Huarong—a major player in Chinese finance with about $22 billion of offshore debt and investment-grade ratings from global credit raters.
Huarong, which is majority owned by China’s Ministry of Finance, is the largest of four asset managers that were created by Beijing in the late 1990s when the country’s banks were struggling with large portfolios of bad debt. At the time, Huarong and its peers bought nonperforming loans from China’s biggest state-owned banks and worked to dispose of them by auctioning off and selling the loans to other investors, including foreign banks.
Huarong expanded aggressively—adding securities trading, lending and other financial services—before running into trouble. In January its former chairman, Lai Xiaomin, was executed for bribery and corruption offenses—an unusually harsh punishment for a corruption case.