20211118-招银国际-HRINTH_–_Capital_injection_realizes,_Neutral_post_rally_4页_434kb

CMBI Credit Commentary Summary

Core Content

This document is a credit commentary issued by CMBI Fixed Income, focusing on Huarong Asset Management Corporation (HRINTH) and its recent financial actions. The commentary outlines the implications of these actions on the company's capital structure, regulatory compliance, and market position.

Key Financial Actions

• Capital Injection: Huarong AMC has proposed a non-public share issuance to a consortium of investors, including CITIC Group, China Insurance Investment, China Cinda, China Life, and ICBC Investment, to raise up to RMB 42 billion. This move is aligned with expectations of a government bail-out.
• Shareholding Changes: Following the capital injection, the Ministry of Finance's stake in HRINTH will decrease from 57% to 27.76%, remaining the largest shareholder. CITIC Group will hold 23.46%, and China Insurance Investment will hold 18.08%.
• Subsidiary Stake Transfers: Huarong plans to publicly transfer its entire 79.92% stake in Huarong Financial Leasing and its 40.53% stake in Huarong Xiangjiang Bank. These transfers are expected to be based on asset valuations filed with the Ministry of Finance as of 30 September 2021.
• Estimated Proceeds: The estimated proceeds from these subsidiary stake transfers are at least RMB 26 billion.
• Regulatory Capital Adequacy: The combination of new share issuance and subsidiaries disposal is expected to help HRINTH meet its minimum regulatory capital adequacy ratio and replenish liquidity.
• Financial Performance: HRINTH reported a net loss of RMB 102.9 billion in FY2020 and had an attributable equity of RMB 19.2 billion as of 1H21, highlighting its financial distress.

Market Outlook

• Bond Issuance: HRINTH has been approved by the CBIRC to issue up to RMB 70 billion in financial bonds on 11 November 2021. This onshore issuance could significantly help in meeting its offshore USD 6 billion maturities by the end of 2022.
• Yield and Price: Post the rally in HRINTH's curve, the analysts are Neutral on the stock, with a preference for HRINTH '22 notes at a yield to maturity (YTM) of ~3.75% and a par cash price.
• Change of Control: The USD notes Change of Control is not triggered, as the PRC government or persons controlled by it continue to hold majority control.

Analysts and Contact Information

• Polly Ng 吴宝玲: (852) 3657 6234 | pollyng@cmbi.com.hk
• Glenn Ko, CFA 高志和: (852) 3657 6235 | glennko@cmbi.com.hk
• Wilson Lu 路伟同: (852) 3761 8918 | wilsonlu@cmbi.com.hk
• James Wen 温展俊: (852) 3757 6291 | jameswen@cmbi.com.hk

Disclaimer and Risk Information

• Author Certification: The primary author certifies that the views expressed are their personal opinions and that their compensation is not tied to the specific views in the report.
• Trading Restrictions: The author has not traded in the stocks covered in the report within 30 days prior to the report's issue and will not do so within 3 business days after.
• Investment Risks: There are risks involved in trading securities, and past performance does not guarantee future results. The value of investments may fluctuate due to market conditions.
• No Investment Advice: The report is not intended as investment advice and should be used for informational purposes only.
• Legal Responsibility: The information in the report is based on publicly available data and is not guaranteed for accuracy or completeness. CMBIS may issue other reports with differing conclusions.

Distribution and Jurisdictional Restrictions

• Hong Kong: The report is for the use of intended recipients only and cannot be reproduced or distributed without prior written consent.
• United Kingdom: The report is only provided to persons falling within Article 19(5) of the Financial Services and Markets Act 2000 or Article 49(2) (a) to (d) "High Net Worth Companies, Unincorporated Associations, etc."
• United States: The report is intended for distribution solely to "major US institutional investors" and is not subject to U.S. regulatory requirements.
• Singapore: The report is distributed by CMBI (Singapore) Pte. Limited, an Exempt Financial Adviser regulated by the Monetary Authority of Singapore. Legal responsibility is limited to the extent required by law for non-accredited investors.

Conclusion

The credit commentary highlights HRINTH's efforts to stabilize its financial position through capital injections and subsidiary stake sales. These actions are expected to improve its regulatory capital adequacy and liquidity, although the overall outlook remains Neutral. The report underscores the importance of independent evaluation and professional financial advice for investors.