Concerns Over Massive Sell-Off of Overseas Bonds Issued by China's Huarong Asset Management

Sharp Drop in Overseas Bond Prices Including Perpetual Bonds Following Annual Report Delay
Former Chairman Lai Xiaomin Executed in January Over Corruption Scandal

[Asia Economy Beijing=Special Correspondent Jo Young-shin] Chinese major asset management company Huarong Asset Management Co., Ltd.'s overseas bond prices are showing signs of instability, with sharp declines, according to Chinese economic media Caixin on the 15th.

Caixin reported that since the 12th, many overseas bonds issued by Huarong have come onto the market, causing prices to drop more than 10% over four days.

Since the postponement of Huarong's annual report announcement, the price of perpetual bonds (interest rate 4.25%) has plummeted. As of 7 p.m. on the 14th, Huarong's perpetual bond price traded at $55.61, down 13.67% from the previous day. Before the earnings announcement delay, on the 31st of last month, this bond traded at $103.10.

[Image source=Yonhap News]

Caixin explained that another perpetual bond with an interest rate of 4.50% also traded at $69.5, down 31.26% compared to before the annual report postponement.

Caixin reported that investors are becoming anxious as Huarong's overseas bond prices sharply decline.

Huarong's short-term bonds are also falling in price. A $300 million bond issued with an interest rate of 3.375% (maturing in May 2022) traded at $77.472 as of the 14th. This bond price has dropped 24.05% since the beginning of this month.

A bond dealer in Hong Kong explained, "With the postponement of the annual report announcement, the possibility of debt restructuring in the market, and even concerns about bankruptcy, all of Huarong's overseas issued bonds have flooded the market."

After the postponement of Huarong's annual report announcement, the world's three major credit rating agencies?S&P, Moody's, and Fitch?successively downgraded Huarong bonds. S&P placed Huarong on the negative credit watch list, citing increased uncertainty due to the annual report delay.

As of the 14th, Huarong's issued overseas bonds reportedly include $219.6 billion in dollar-denominated bonds, €590 million in euro-denominated bonds, and SGD 723 million in Singapore dollar-denominated bonds. All these bonds were issued through its overseas subsidiary, Huarong International.

Huarong Asset Management was once China's top asset management company, but it began to falter after its owner, Chairman Lai Xiaomin, was embroiled in a corruption scandal. Former Chairman Lai was sentenced to death in the first trial for accepting bribes totaling 1.788 billion yuan (approximately 300 billion KRW) and for polygamy from 2008 to 2018. The second trial court upheld the same sentence. It is reported that Lai's death sentence was carried out in January.