When China Huarong Asset Management Co. missed its March deadline when it planned to release its 2020 financial results, investors sold off its bonds and placed them below face value. China Huarong Asset Management Co. sold off its owned US dollar bond. Huarong Asset Management is mostly owned by China’s Ministry of Finance and one of the big four asset management in Beijing since its inception at the late 1990 (Yu & Ping, 2021, April 15).
Huarong had 1.73 trillion yuan of assets that are roughly equivalent of $265 billion. In addition, it has $22billion of international bonds outstanding, which worries many investors. That international bonds are issued by offshore units without direct guarantee by Huarong Asset Management Co. Three quarters of Huarong’s global bonds are covered by Keepwell agreements only (Yu & Ping, 2021, April 19).
Considering that Huarong is the largest holder of Chinese bad-debts in the late 1990s, it seems that Chinese government stops backing off Chines State owned institution and forces restructuring its debt structure. For example, in 2019, Baoshang Bank Co. was seized to reduce offshore credits and showcased it (Yu & Ping, 2021, April 15).
Some analysts including Chang Wei Liang at DBS Bank, see long headwinds for Huarong who needs to restructure its complex book. By contrast, others see overreaction in market selloffs. For example, Shujin Chen in Jefferies said Huarong is too big to fail considering its direct ownership of Chinese central government (Yu & Ping, 2021, April 19).
Overseas investment needs multiple scenarios where investors are fully prepared for, including political climate change to credit market as Chinese government seems to ponder if it shall continue or discontinue its full hearted supports.
Cite this as:
Rachel Kim (2021, April 21). Chinese Bond Market Jittery, The Blue Ocean Management.com, retrieved from: https://theblueoceanmanagement.com/2021/04/21/chinese-bond-market-jittery/
Yu, X. & Ping, C.K. (2021, April 15). Chinese Asset Manager Suffers Bond Selloff After Delaying Results, Wall Street Journal, retrieved from: https://www.wsj.com/articles/chinese-asset-manager-suffers-bond-selloff-after-delaying-results-11618496945
Yu, X. & Ping, C.K. (2021, April 19). Chinese Asset Manager’s Bonds Recover After Selloff, Wall Street Journal, retrieved from: https://www.wsj.com/articles/chinese-asset-managers-bonds-recover-after-selloff-11618826324