Huarong Rescue Team Hit by $4 Billion Paper Loss as Stock Sinks

(Bloomberg) -- The state-controlled investors that were directed to bail out China Huarong Asset Management Co. suffered a loss of more than $4 billion as the bad asset manager resumed trading after a nine-month suspension.

Huarong slumped as much as 55% in Hong Kong as trading resumed after the firm last week completed a $6.6 billion state-orchestrated bailout. The tumble handed the group of state-backed investors, which had bought a total of 41.2 billion domestic and Hong Kong shares for 1.02 yuan apiece, a combined loss on paper of 26.4 billion yuan ($4.1 billion).

Citic Group, now Huarong's second-largest shareholder after the Ministry of Finance following the recapitalization, saw its investment slide about 12 billion yuan. China Insurance Rongxin Fund, the third-biggest holder, was hurt to the tune of 9.3 billion yuan. Nevertheless, representatives from both firms said at a press briefing Wednesday that they were optimistic about Huarong's prospects.

“The investment will further strengthen Citic's positions in the bad-asset management sphere and help the group better serve national strategy,” said Wei Xu, deputy general manager of the Strategic Development Department at Citic Group. “We're optimistic about the opportunities from distressed markets as well as the future of Huarong.”

Rongxin General Manager Luo Yihong said its investment was made from a longer term perspective and is “an example of insurance capital being put to use to maintain financial market stability.”

Created following the Asian financial crisis in the late 1990s to buy up bad debt from the nation's struggling banks, Huarong had expanded into a financial conglomerate. It spooked Asian credit markets last year when it failed to report earnings on time, and eventually revealed it had lost about $16 billion in 2020.

The firm ultimately proved too big to fail. Huarong said late Tuesday that it now had taken measures to return to its core business, simplify its structure, reduce capital consumption and boost returns. It has also embarked on disposals of none-core assets to pare back its sprawling empire.

An official at Huarong said on Wednesday that while the company “attaches great importance” to the performance of its stock, it's affected not only by its operations but also by the economic environment, policies and market sentiment. The primary task now is to improve the core business and ensure a sustainable development, the official said.

The firm reported a profit of 1.62 billion yuan in the first six months of 2021.

Stanley Chan, an analyst at Emperor Securities, said the tumble in the stock price was expected given the long suspension. “The worst is over and the stock price needs time to go into an uptrend as investors need to evaluate its future developments, which are still unclear at present,” he said.

With assistance from Bloomberg