China Huarong sells equity at premium

PUBLISHED : Wednesday, 13 December, 2000, 12:00am
UPDATED : Wednesday, 13 December, 2000, 12:00am

A Chinese asset management company (AMC) has sold holdings in a firm whose debt it had acquired - and achieved a premium to the price it originally paid.

It is the first time an AMC has sold a firm's equity rights at a premium since Beijing set up the debt-for-equity scheme to bail out state-owned enterprises (SOEs) and banks last year.

Under the scheme, the AMCs bought loans from banks and transformed their status as creditors of the indebted companies to shareholders, with the aim of revitalising the assets of the firms.

The move of China Huarong Asset Management, the mainland's largest such firm, could help smooth concerns about the ability of AMCs to resell assets.

According to state media reports yesterday, China Huarong, the debt-clearing firm of the Industrial & Commercial Bank of China (ICBC), has agreed to sell 115 million yuan (about HK$107 million) of equity in Xianjiang Shiyue Tractor Manufacturing. The buyer is Xinjiang Guanghui - a private company from northwestern Xinjiang province with capital assets of more than four billion yuan.

The price represents a 5 per cent premium over the price China Huarong paid last year.

'This is the first time an asset management corporation has sold their equity rights at higher than actual value,' state-owned China Daily quoted a Huarong official as saying.

China Huarong is one of four AMCs set up last year under a State Council mandate to tackle about 5 per cent of the mounting non-performing loans held by the Big Four - ICBC, Bank of China, China Construction Bank and the Agricultural Bank of China.

The AMCs aimed to help the four largest commercial banks by accepting 1.2 trillion yuan in non-performing loans, of which 400 million yuan could be swapped directly for equity in troubled SOEs.

The move represents a major step in reforms because debt-clearing firms have been searching for potential buyers of debt-laden SOEs acquired from state banks.

Analysts have doubted whether the firms would be able to find buyers because of the quality of state assets.

Failure to resell state assets would hamper the revitalisation process.

It is hoped that the deal could pave the way for similar future disposals by debt-clearing firms.

Analysts said China Huarong's successful disposal of assets at a premium reflected improving market conditions.

Xinjiang Guanghui plans to inject 200 million yuan into Xianjiang Shiyue, the largest tractor manufacturer in the northwestern region.