Banking & Finance

China’s Huarong to raise US$1b in Hong Kong note sale after former boss’ downfall

It will sell three batches of notes to institutions to raise funds for general working capital

PUBLISHED : Wednesday, 27 June, 2018, 12:50pm
UPDATED : Wednesday, 27 June, 2018, 10:59pm

China’s state-owned asset manager Huarong aims to raise US$1.1 billion from the Hong Kong market in a public offering of notes, three months after its former head was taken away for investigation by the Communist Party’s anti-graft authority, which put the firm’s business under scrutiny.

A wholly owned subsidiary under Hong Kong-listed China Huarong Asset Manager, China’s biggest distressed asset manager, has proposed an international offering of the notes to institutional investors, according to a filing to the Hong Kong stock exchange on Wednesday morning.

The offer comprises three batches of notes, all starting from July 3. The first batch, US$400 million in aggregate principal amount, will mature in July 2021. The interest rate will be floating, equals to three-month Libor rate plus 117.5 basis points.

The second batch will raise US$550 million and mature in July 2023, and with an interest rate worth three-month Libor plus 132.5 basis points. The final batch, worth US$150 million and at an annual coupon rate of 4.75 per cent, will mature on April 27, 2027.

Net proceeds from the offering, estimated to be around US$1.09 billion, would be used as working capital and for general corporate purposes, the firm said in the filing.

The filing also said the notes were expected to be rated “Baa 1” by Moody’s and “A” by Fitch.

Sources close to the deal said the offering had been four to five time oversubscribed, mainly by Chinese banks.

Backed by state credit, Huarong has been blessed with low-cost capital, which has resulted in it becoming one of China’s most aggressive investors, gobbling up distressed assets and lending excessively to companies.

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However, the downfall of former chairman Lai Xiaomin has triggered Beijing’s concern of Huarong’s business model.

Wang Zhanfeng, head of the Guangdong branch of China’s banking regulator, was appointed as new chairman, a week after Lai was taken away for investigation. A thorough internal inspection and an overhaul have since unfolded to mitigate risks and bring Huarong back on track as a distressed asset manager.

Huarong has also been the most active bond issuer in the Hong Kong market, with more than 210 billion yuan (US$26.8 billion) worth of bond repayments due by 2020, and another 52.7 billion yuan due between 2025 and 2027.

Shares of the firm fell 3.3 per cent to HK$2.30 at Wednesday’s close.