Banking & Finance

Huarong’s client list offers a peek into how China’s financial ‘crocs and rhinos’ fund their forays

Five of its 18 biggest clients among China’s largest corporates, but there’s also troubled Hanergy and Dandong Port, and a Cayman Isles-registered private property agent

PUBLISHED : Thursday, 26 April, 2018, 7:01am
UPDATED : Thursday, 26 April, 2018, 2:17pm

China Huarong Asset Management, the mainland’s largest bad-debt manager, has been active in funding the country’s biggest corporate borrowers, including a number of companies and individuals firmly under the regulatory spotlight, according to a list circulated following the detention of its chairman last week for suspected graft. 

The line-up is a venerable Who’s Who of China’s biggest corporate borrowers, but also offers an intriguing glimpse into the murky workings of some of the country’s financing, when non-bank institutions have stepped into provide funding when stringent lending guidelines fail. 

Established in 1999 to manage the bad loans of state-owned banks, Huarong has transformed itself into a financier active in lending through a variety of financial products, thanks to strong levels state credit and a powerful portfolio of financial service licenses.

Head of China’s largest bad-debt manager under corruption probes

Five of its 18 biggest clients were among China’s largest corporate borrowers. These include HNA Group, the energy and financial conglomerate CEFC China Group, Huishan Dairy, Hanergy Thin Film Power Group, and Dandong Port Group, according to a list seen by the South China Morning Post.

The list was issued to Huarong subsidiaries and branches after China’s anti-corruption watchdog last week announced it had placed chairman Lai Xiaomin under investigation, sources told the Post.

The list, issued by the load manager’s head office, was intended to provide a picture of its exposure to the related firms as soon as possible, a source said.

The list also revealed that Huarong acted as lender to a number of shadowy groups.

Tianlai Culture & Tourism, a Cayman Island-registered private real estate developer, was able to tap funding worth around 2 billion yuan (US$316.7 million) through a variety of finance and refinancing agreements from several units under Huarong, since 2014. 

The developer pledged commercial property under development on the outskirts of Chengdu, Sichuan province, as collateral, according to an online project prospectus.

Part of the land transfer fee for the project was funded by Huarong, according to the prospectus.

Little is known publicly about Tianlai. However the company was a sponsor of the “Cheongsam Baby” beauty contest in 2015 in Chengdu. It has also been involved in several lawsuits relating to lending disputes since 2015.

Fukong Interactive Entertainment, a Shanghai-listed company that secured loans worth more than 1.6 billion yuan from Huarong units, saw its controller Yan Jinggang put under investigation by China’s top securities regulator on January 17 for suspected violation of securities law.

Feted bond trader under police probes as market scrutiny tightens

Other clients included HNA and CEFC China, sprawling groups that have recently come under government scrutiny.

HNA, the heavily indebted airline and logistics conglomerate, has started to sell off assets including stakes in Hilton Hotels & Resorts and Deutsche Bank, following a US$50 billion acquisition spree over the past two years.

CEFC China, on the other hand, has 10.1 billion yuan worth of debt due to mature at the end of 2018. The company’s chairman Ye Jianming has been placed under investigation, and assets worth billions of yuan have been frozen by court order following legal action by creditors.

China freezes CEFC’s shares, casting doubt on energy giant’s future

Other large clients, including the Hong Kong-listed companies Huishan Dairy and Hanergy, and privately owned Dandong Port, have defaulted on debt obligations in the past year.

HSBC said last April that China Huishan Dairy Holdings was in default on a US$200 million loan agreement. The company is currently under liquidation.

SFC pushes for court to ban several Hanergy executives

Hanergy defaulted on payments related to 1 billion yuan worth of bonds in 2016. The company’s shares have been suspended from trading since a Hong Kong court disqualified its former chairman Li Hejun from being a director of the company for eight years.

Dandong Port has assets sealed under order of a Hong Kong court in mid March, after it defaulted on debt repayments.

Huarong, formed in 1999 to handle distressed assets, is one of China’s big four “bad” banks. Between 1999 and 2005 it absorbed 1.4 trillion yuan worth of non-performing loans from state-owned banks.

Debt crisis in China’s port bordering North Korea

Huarong has since become a financial services conglomerate providing its clients with “flexible, customised and diversified financing channels and financial products” spanning securities, futures, trust, banks, financial leasing and consumer finance, according to its official website.

Huarong’s total assets surpassed 1 trillion yuan in 2016, having expanded 32 times in size from 2008, according to the company’s website.

The company ranks as one of China’s most aggressive financial service providers in areas involving distressed assets and corporate lending. 

Huarong has more than 210 billion yuan worth of bond repayments in due by 2020, and another 52.7 billion yuan due between 2025 and 2027.