What’s better than cleaning up your battered brand? Adopting a new one with the state’s seal of approval.
That’s the view of China Huarong Asset Management (2799.HK), one of the country’s four so-called bad banks created after the 1997 Asian financial crisis to buy soured loans from state-owned lenders. Late on Wednesday, it renamed itself “China CITIC Financial Asset Management” after its top shareholder, state-owned financial conglomerate CITIC group.
The latter has held a 26.5% stake since a $6.6 billion government-orchestrated bailout of Huarong in 2021. Given Huarong’s heavy exposure to China’s struggling real estate sector, the name change may make it more difficult for CITIC to steer clear of the troubles engulfing the sector.
Huarong has been bleeding money for years. In 2018, its earnings collapsed as then-Chairman Lai Xiaomin became the target of a graft probe. China executed him three years later but Huarong’s situation didn’t improve. Its real estate woes contributed to a net loss of around $4 billion for 2022. That has already caused some problems for CITIC: it incurred $1 billion in equity investment losses in 2022, per S&P, mainly due to Huarong's poor performance. For the six months to June, Huarong still reported a net loss attributable to equity holders of $676 million.
In a mutual back-scratching exercise, Huarong also bought a 5% stake in CITIC's Hong Kong-listed unit, CITIC Ltd (0267.HK), at a 30% premium to Wednesday's closing price. Tellingly, Huarong shares rose 15% on Thursday morning but shares of CITIC Ltd dropped by 1%. Now that Huarong has taken up the CITIC brand, the state’s support of the bad bank has more at stake if its troubles don't go away. (By Yawen Chen)
Follow @Breakingviews on X
Capital Calls – More concise insights on global finance:
Goodyear tune-up may go beyond rotating the tires
Target’s aim is better at the bottom than the top read more
Alstom takes the direct route to lower credibility read more
Fierce e-commerce war leaves Sea in stormy waters read more
Softer inflation could hide a hard landing read more
(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)
