China's Huarong aims to raise US$2 billion with sale of 15pc stake

Firm was set up to dispose of 1.4 trillion yuan of state lenders' bad loans before bank's IPOs

PUBLISHED : Tuesday, 25 June, 2013, 12:00am
UPDATED : Tuesday, 25 June, 2013, 4:45am

Huarong Asset Management plans to raise up to US$2 billion by selling a stake of 15 to 20 per cent, two sources said, becoming the mainland's second asset management firm to offer a minority stake to outsiders.

Established in 1999, Huarong is the biggest of the four funds the central government set up to remove an estimated 1.4 trillion yuan (HK$1.75 trillion) of bad loans from the top four state banks as they prepared for initial public offerings.

Huarong was set up to acquire Industrial and Commercial Bank of China's 407.7 billion yuan of bad assets. ICBC, which was listed in Hong Kong and Shanghai in 2006, had accrued the bad assets when the bank made government-directed loans to 71,000 mostly state-owned firms, media reports at the time said.

Huarong's planned fund raising comes at a time when the quality of loans inside the mainland's banking system is under heavy scrutiny amid slowing economic growth. Last week's spike in interbank lending rates created a cash crunch that sparked worries across the country's financial system.

Huarong has invited banks to make pitches to win an advisory role in the sale and recently appointed one to run the process, according to one of the sources, who asked not to be named as the information was not public yet.

Cinda Asset Management, another bad-loan vehicle created by Beijing, raised US$1.6 billion last year from investors including the National Social Security Fund, Standard Chartered and UBS.

That firm has kicked off its plan for an initial public offering, informally engaging Bank of America Merrill Lynch, Credit Suisse, Goldman Sachs and UBS to work on the potential listing, IFR reported last week.

Huarong's own eventual goal is to turn into a publicly listed company, and the sale of the minority stake is a prelude to share offering, sources said.

Beijing set up Huarong, Cinda, Great Wall Asset Management and Orient Asset Management to buy up non-performing loans from its state-owned banks in preparation for the lenders' eventual listing.

The four bad-loan vehicles have all transformed into commercially viable entities after completing their mandates to dispose of bad debts inherited from the Big Four banks. That has enabled them to compete directly with other Chinese brokerages and asset management firms.

Huarong was restructured into a joint-stock financial holding group last year, with businesses ranging from asset management to banking, securities and real estate. Its net profit jumped 66 per cent last year to 6.96 billion yuan.

The mainland's Ministry of Finance, which owns 98 per cent of Huarong, planned to sell some of its shares but would keep a controlling stake, chairman Lai Xiaomin said in April.