China Huarong Asset Management Co. returned almost $2 billion back to Citic Group after the financial conglomerate led a bailout of the bad debt manager two years ago.
Huarong agreed to pay HK$13.6 billion ($1.7 billion) for a 5% stake in Citic Ltd. from another one of the group’s entities. The firm will pay HK$9.35 a share, or 29% premium to Wednesday’s closing price, according to a filing.
The investment will bring “longterm stable financial returns,” Huarong said in a filing.
Huarong also updated its progress on slimming down its business, saying it completed the disposal of equity interests in five licensed subsidiaries, according to another exchange statement. The sales realized a gain of 3.5 billion yuan ($483 million).
Huarong rose 16.4% as of 10:10 a.m. in Hong Kong. Citic Ltd. slid 0.6%.
Huarong rattled Asian credit markets in 2021 after it failed to release its annual report on time, eventually revealing a massive loss for 2020. It later received a $6.6 billion government-orchestrated bailout that saw Citic Group overtake the finance ministry as its largest shareholder. Citic Group, a state-run financial conglomerate, now holds 26% of Huarong, according to the statement.
“The move suggests the possibility of Citic Group using Citic Ltd. as a major platform to consolidate some of Huarong’s assets and deepen cooperation with it in future, as part of the broad reorganization,” said Shen Meng, a director for Beijing-based investment bank Chanson & Co.
Huarong also plans to change its name to China Citic Financial Asset Management Co.
The change “is good for market sentiment and from a technical perspective,” said Ting Meng, a senior credit strategist at Australia & New Zealand Banking Group. “It could enable onshore investors to invest in Huarong under Citic Group line.”
Huarong, together with China Cinda Asset Management Co., China Great Wall Asset Management Co. and China Orient Asset Management Co., was created to buy bad loans from banks in the aftermath of the late 1990s Asian financial crisis, when decades of government-directed lending to state companies had left China’s biggest lenders on the brink of insolvency. The firms later expanded beyond their original mandate, creating a labyrinth of subsidiaries to engage in other financial businesses, including shadow lending.
--With assistance from Wei Zhou.
