(Yicai Global) Aug. 19 -- China Huarong Asset Management, the country’s biggest bad debt manager, said it fell into the red last year and unveiled a state-backed recapitalization plan led by Citic Group.

Huarong lost CNY102.9 billion (USD15.9 billion) in 2020, compared with a net profit of CNY1.4 billion (USD216 million), the Beijing-based company announced yesterday. In a separate filing, Huarong said that it would bring in Citic and four other strategic investors to replenish its capital.

Trading in the Hong Kong-listed company’s shares has been suspended since April 1 and will not resume until the release of its audited 2020 results. The company failed to release the annual results in April.

Since 2020, with the trial and sentencing of former Chairman Lai Xiaomin for bribery, embezzlement and bigamy, Huarong has been cleaning up and disposing of risky assets resulting from Lai’s tenure, it said in a Chinese Q&A article published via its WeChat account late yesterday.

The pandemic also resulted in certain customers being unable to fulfill their contracts, and the quality of some current assets deteriorated faster, the article said. Huarong recognized the credit impairment loss and loss from fair value changes in the current period, which had a significant impact on the operating results, it added.

Huarong said it is operating normally, with steady development of its various businesses. At the same time, it has implemented capital replenishment rules, and plans to introduce a number of strategic investors to increase its capital through the issuance of new shares.

State-Backed Investors

Huarong has signed a framework investment agreement with five state-backed financial institutions -- Citic, China Insurance Investment, China Life Asset Management, China Cinda Asset Management and Sino-Ocean Capital Holding. Work related to share subscriptions is under way.

Huarong is in a good financial condition. It has spent CNY63.3 billion (USD9.8 billion) to pay off 94 maturing bonds issued onshore and offshore since April 1, and is also fully prepared for future bond repayments, the company said.

In response to a regulatory requirement that financial asset managers get back to their main business, Huarong intends to transfer shares in Huarong Trading Center and Huarong Consumer Finance and reorganize shares in Huarong Trust. Both projects are making progress, it added.

The Chinese government set up four major asset management companies in 1999, including the predecessors of Huarong and China Cinda, to defuse systemic financial risks at state-owned banks and tackle non-performing policy assets separated from state capital.

Huarong transformed into a financial holding group in 2012, when Lai became its chairman. It went public on the Hong Kong stock exchange in October 2015.

Huarong’s net assets at the end of 2017 were CNY182.66 billion. The disclosure of Lai’s illicit actions in 2018 exposed hidden capital risks in Huarong. The former chairman was executed in January.

Editor: Peter Thomas