What’s new: China’s banking regulator approved the transfer of a 3% stake in China Huarong Asset Management Co. from the Ministry of Finance to state-owned investment giant Citic Group, the China Banking and Insurance Regulatory Commission said Thursday.
After the transfer, Citic Group will replace the Ministry of Finance as Huarong’s largest shareholder with 26.46%, marking the latest step in a multibillion-dollar overhaul of the troubled bad-debt manager.
Citic Group will receive 2.41 billion domestic Huarong shares from the ministry. The transfer will reduce the ministry’s ownership to 24.76%, the banking commission said.
Citic Group initially took a 23.46% stake in Huarong in November after leading a group of investors in a $6.6 billion government-orchestrated bailout of the bad-debt manager. Other investors include China Insurance Investment Co. Ltd., China Life Asset Management Co. Ltd., China Cinda Asset Management Co. Ltd. and Sino-Ocean Capital Holding Ltd.
The background: Created following the Asian financial crisis in the late 1990s to dispose of the vast quantity of nonperforming assets at China’s state-owned banks, Huarong has been in turmoil since the downfall of its former chairman, Lai Xiaomin, in April 2018.
Under the years-long tenure of Lai, Huarong expanded beyond its original mandate and grew into a conglomerate engaged in a wide range of financial services, including securities, trusts, banking and financial leasing. The aggressive expansion through opaque deals with affiliated companies left it with hundreds of billions of yuan of debt.
Lai was executed in January 2021 in the country’s biggest financial-sector corruption case. He was convicted of taking a record 1.79 billion yuan ($253 million) of bribes from 2008 to 2018 in exchange for his help on a range of issues such as financing and promotions.
The depth of Huarong’s financial troubles came to light in March 2021 when the company delayed its annual report. In August that year, it finally revealed it suffered a record loss of 102.9 billion yuan in 2020. Over the past few years, the enterprise has been restructuring its business and offloading noncore assets to repay debt.
Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bob.simison@caixin.com)
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