20220921-招银国际-Chinese_AMCs__Another_reality_check_5页_843kb

CMBI Credit Commentary Summary

Core Content Overview

This document provides a credit commentary on the Chinese Asset Management Companies (AMCs) sector, focusing on investment recommendations and analysis of key financial metrics. The sector has faced challenges due to the slowing Chinese economy, rising defaults, and non-performing loans (NPLs), but remains supported by government intervention. The report highlights specific investment opportunities within the sector and outlines the credit profiles of major players.

Main Recommendations

Preferred Investment Instruments

• HRINTHs (Huarong's perpetual bonds):

  • HRINTH 4.25% PERP: Subordinated, offer price 75.0, YTW 14.2%, T-spread 990.4, modified duration 2.6, next call date 30/9/2025.
  • HRINTH 5.5% '25: Sr Unsecured, offer price 91.8, YTW 9.2%, T-spread 518.1, modified duration 2.1.

• CCAMCLs (China Cinda Asset Management Co. Ltd.):

  • CCAMCL 5.2% '29: Sr Unsecured, offer price 91.6, YTW 6.6%, T-spread 312.8, modified duration 5.8.
  • CCAMCL 3% '31: Sr Unsecured, offer price 77.4, YTW 6.5%, T-spread 301.9, modified duration 7.
  • CCAMCL 4.4% PERP: Jr Subordinated, offer price 92.4, YTW 6.4%, T-spread 260.8, modified duration 3.5.

• GRWALLs (Great Wall Asset Management Co. Ltd.):

  • GRWALL 3.95% PERP: Sr Unsecured, offer price 90.8, YTW 8.9%, T-spread 462.7, modified duration 1.7, next call date 31/7/2024.

Key Rationale

• The sector has rebounded slightly from the lows in early July 2022, but benchmark papers remain 4-14 points below June 2022 levels.
• The report prefers listed AMCs (Huarong and Cinda) due to higher data transparency.
• In a rising rate environment, shorter-tenor instruments are favored for better yield and liquidity.
• HRINTHs and CCAMCLs are highlighted for their improving credit profiles and better valuations.

Key Financial Insights

Performance of National AMCs in 1H22

Cinda's Performance

• Cinda reported a net profit of RMB4.5bn in 1H22 despite an 84.8% increase in assets impairment losses.
• The company issued RMB12bn of perpetual bonds in Feb'22, boosting its CAR to 18%.
• Cinda is actively involved in government-led distressed asset acquisitions, such as the Kaisa Guangzhou Nansha project.

Huarong's Performance

• Huarong recorded a net loss of RMB18.9bn in 1H22, primarily due to fair value losses and credit impairment.
• The company has been optimizing its balance sheet through asset disposals, realizing cRMB30.5bn in 2022.
• Huarong is planning to issue RMB30bn of tier II capital bonds to improve its CAR and liquidity.

Credit Rating and Outlook

Outlook:

• Cinda: Negative
• Huarong: Negative
• Great Wall: Negative (Moody's) and CreditWatch Negative (S&P)

Sector Trends and Outlook

• The Chinese AMC sector has been in a net redemption trend since 2019.
• In 2022, only Great Wall raised USD500mn in offshore senior unsecured debt.
• Onshore issuances were more prominent, with Cinda and Huarong issuing undated bonds to replenish capital.
• The report expects continued onshore fundraising due to interest rate hikes and RMB fluctuations.

Additional Notes

• The report highlights the strategic importance of the AMC sector in the context of China's economic slowdown.
• It underscores the importance of capital adequacy, liquidity, and credit quality in selecting investment instruments.
• The report is issued by CMB International Global Markets Limited, a subsidiary of China Merchants Bank.
• It includes important disclosures regarding the risks, assumptions, and limitations of the analysis.