China considers supporting Huarong with cbank funds
China is considering a plan that would see the central bank assume more than 100 billion yuan ($15 billion) of assets from China Huarong Asset Management Co., helping the state-owned company clean up its balance sheet and refocus on its core business of managing distressed debt, people familiar with the matter said.
Under a proposal that's still being finalized and could change, a unit of the People's Bank of China would assume assets from some of Huarong's unprofitable operations, the people said, asking not to identified as the discussions are private. Further details on how the arrangement would work couldn't immediately be learned.
Separately, China Huarong International Holdings Ltd., the offshore unit that issues or guarantees most of Huarong's dollar bonds, is in the process of transferring distressed assets worth tens of billions of yuan into a separate offshore entity called China Huarong Overseas Investment Holding Co., one of the people said. The move is aimed at improving the financial health of China Huarong International, the group's main link to overseas funding, the person said.
Bloomberg has previously reported that Huarong proposed an overhaul plan to Chinese regulators that would involve offloading its money-losing, non-core businesses.
If the PBOC proposal comes to fruition, it would mark a significant show of government support for a company that has faced intense investor scrutiny after missing a deadline to report earnings at the end of March. Speculation about a looming debt restructuring sent Huarong's dollar bonds to record lows last week, stoking fears of market contagion and prompting some investors to reconsider assumptions about implicit government guarantees that have underpinned China's credit market for decades. Huarong's bonds have swung wildly in recent days amid conflicting signals about the company's fate.
While the China Banking and Insurance Regulatory Commission said last week that Huarong was operating normally and had ample liquidity, authorities have remained quiet about whether the government will offer any financial support. It's unclear whether Chinese regulators have given Huarong any specific guidance related to its offshore bonds.
The PBOC said it couldn't immediately comment when contacted by Bloomberg on Wednesday. The CBIRC and Huarong didn't immediately respond to requests for comment.
"The news suggests that the central government is examining options to provide bail-out solutions to Huarong," said Dan Wang, an analyst at Bloomberg Intelligence in Hong Kong. "The potential involvement of the PBOC, which is experienced in handling distressed financial institutions, also gives the market more hope that the Huarong saga will be dealt with in an orderly way that is less likely to incur losses for offshore bondholders
Meanwhile, Bank of America Corp. and
JPMorgan Chase & Co. did more than just bolster their cash stockpiles last week as they smashed records for U.S. bank bond issuance. They also spurred hedging that helps explain the mystery behind a sudden lurch lower by Treasury yields.
Rates on 10-year notes dove to 1.53% on Thursday, a level last seen a month earlier, despite positive economic news that day that many expected would do the opposite. The yield is barely above that at 1.56%, down for the day as stocks and oil decline. Trading in the derivatives market probably explains much of this. The swap spread -- or gap between 10-year U.S. yields and interest-rate swaps -- shrank for six straight days, putting it at the tightest level since August.