Leading to 42 billion yuan, speeding up the clearance of non-main business licenses, the Huarong crisis is coming to an end?

Huarong also announced that it will publicly transfer the equity of Huarong Financial Leasing Company and Huarong Xiangjiang Bank, and since the beginning of this year, Huarong has announced the transfer of its consumer finance, securities and other financial subsidiaries, and the disposal of non-main business licenses has accelerated significantly

Wen | Caijing reporter Tang Jun

Editor| Yuan Man

Huarong, China (2799. HK) chairman Wang Zhanfeng once said in his speech at the 2020 annual report, "Time without a trace can smooth everything out". With the 42 billion yuan injection settled, Huarong's doom seems to be coming to an end.

On the evening of November 17, China Huarong announced that it would introduce five strategic and financial investors through a private private placement. The total size of the offering is about 41.177 billion shares, and the total amount of funds raised will not exceed 42 billion yuan, all of which will be used to supplement the company's core Tier 1 capital. China Huarong said that after the completion of the offering, the company's capital adequacy ratio will meet regulatory requirements.

In order of the number of shares subscribed, the five investors are China CITIC Group Limited (hereinafter referred to as "CITIC Group"), China Insurance Rongxin Private Equity Fund Co., Ltd. (hereinafter referred to as "China Insurance Rongxin Fund", a fund company in which China Insurance Investment Co., Ltd. participates in the investment and establishment), China Cinda Asset Management Co., Ltd. (hereinafter referred to as "China Cinda", 1359.HK), ICBC Financial Asset Investment Co., Ltd. (hereinafter referred to as "ICBC Investment"), and Chinese Life Insurance (Group) Company (hereinafter referred to as "Chinese Life"). ”）。

After the completion of the offering, the shareholding ratio of the Ministry of Finance decreased from 57.02% to 27.72%, and it is still the largest shareholder. It is worth noting that China Huarong stressed in response to reporters' questions that the transfer does not involve a change of actual control. CITIC Group and China Insurance Rongxin Fund ranked second and third largest shareholders with a shareholding ratio of 23.46% and 18.08% respectively. In addition, since the shareholding ratio exceeds 5%, both will be eligible to nominate board members.

The price of the increase was RMB1.02 per share, a premium of 22.89% over the company's share price of HK$1.02 per share before the suspension of trading. Some insiders told the "Finance" reporter bluntly that considering some risk assets that still exist in Huarong's body, this price is expensive. It is worth noting that China Huarong announced that the stock will continue to be suspended, and since April 1, the company has been suspended for more than 7 months. As of the close of trading on the 18th, China Cinda's stock price fell by 0.78% to 1.27 Hong Kong dollars per share.

At the same time, Huarong announced that it will publicly transfer its equity in Huarong Financial Leasing Company (hereinafter referred to as "Huarong Golden Leasing") and Huarong Xiangjiang Bank, and the initial listing price will not be lower than the asset appraisal results filed by the Ministry of Finance. Since the beginning of this year, the company has announced the listing and transfer of Huarong Consumer Finance, Huarong Securities and other financial subsidiaries, and the disposal of non-main business licenses has accelerated significantly.

Up to now, China Huarong's total assets are as high as 1.61 trillion yuan, and it is still the largest financial asset management company in China, and its risk disposal process has attracted much attention from the industry. An industry expert told the "Finance" reporter that from the announcement of the situation of the war, Huarong risk disposal may be nearing the end.

42 billion yuan to enrich the capital

On April 1, 2021, China Huarong announced the suspension of trading and announced the late issuance of the 2020 annual report, thus lifting the lid on the disposal of Huarong's risk assets.

Wang Zhanfeng, chairman of the company, pointed out that the radical operation and disorderly expansion of Lai Xiaomin, the former party secretary and chairman of the board, led to a serious deviation from the main business of the company, and the risks accumulated. According to the "Finance" reporter, between 2015 and 2017, China Huarong's aggressive expansion and high-priced contracting once disrupted the market price of the non-performing asset industry.

On August 18, China Huarong's 2020 annual report was late. According to the annual report, after a comprehensive review and assessment of risks, the company recognized an asset impairment loss of 107.755 billion yuan in the current period, resulting in a net profit loss attributable to the mother of 102.903 billion yuan, recording the largest loss since its listing. Wang Wenjie, vice president of China Huarong, said that the sources of losses mainly include three aspects: one is to record credit impairment losses and fair value change losses after the impairment test of the centralized disposal of existing risk assets, the second is to carefully assess the credit impairment losses of asset risks in the current period, and the third is that the risks of some subsidiaries have impacted the group's operating performance.

After the huge loss, China's capital adequacy ratio fell from 15.29% at the end of 2019 to 4.16% at the end of 2020, and by the end of June 2021, the company's capital adequacy ratio rebounded to 6.32%. According to the Measures for the Administration of Capital of Financial Asset Management Companies (Trial Implementation), China Huarong's core Tier 1 capital adequacy ratio shall not be less than 9%, Tier 1 capital adequacy ratio shall not be less than 10%, and capital adequacy ratio shall not be less than 12.5%, and its capital adequacy ratio shall be seriously lower than the regulatory requirements.

In order to replenish capital in a timely manner and consolidate the foundation for sustainable play, huarong announced the start of the capital increase work at the same time as the release of the annual report. Three months later, the war introduction plan was officially released.

According to the war introduction plan, China Huarong will issue about 41.177 billion shares to five investors including CITIC Group at a price of 1.02 yuan per share, and the total amount of funds raised will not exceed 42 billion yuan. It is reported that all of this fundraising will be used to supplement the company's core Tier 1 capital. Upon completion of the offering, the Company's capital adequacy ratio will meet regulatory requirements.

It is worth noting that the issue price is determined on the basis of the assessed net assets per share of 1.02 yuan per share. The current issue price represents a premium of HK$1.02 per share over the Company's pre-suspension share price of HK$1.02 per share. An industry insider told the "Finance" reporter bluntly that considering the risk assets that have not yet been disposed of in China Huarong, this price is expensive.

As of now, how many risk assets china Huarong still has in its body, the outside world still does not know. Previously, Wang Wenjie pointed out that the company has formulated a risk asset disposal plan for the next 3-5 years, and gradually completed the disposal and collection of risk assets.

According to the data, as of the end of June, Huarong's borrowing balance was 781.985 billion yuan, an increase of 0.5% over the end of the previous year; bonds and notes payable were redeemed on schedule, and the ending balance was 284.967 billion yuan, a decrease of 15.4% from the end of the previous year. That is to say, the scale of the company's interest-bearing liabilities exceeded 1 trillion yuan, and the interest expense on borrowings and bonds and notes payable in the first half of the year was 23.261 billion yuan, a year-on-year decrease of 5.2%.

However, as of now, neither China Huarong nor its subsidiaries have experienced debt overdue. Recently, Huarong has also received financial bonds of no more than 70 billion yuan from the Wholesale Bank, which will inject a large amount of liquidity into it.

The Ministry of Finance remains the actual controller

Previously, the core focus of the market on the progress of China Huarong's risk disposal was whether the company would change owners.

Judging from the subscriptions of the five major investors, CITIC Group subscribed 18.824 billion shares, corresponding to a capital contribution of about 19.2 billion yuan; China Insurance Rongxin Fund subscribed 14.510 billion shares, corresponding to a capital contribution of about 14.8 billion yuan; China Cinda subscribed 3.922 billion shares, corresponding to a capital contribution of 4 billion yuan; ICBC Investment and Chinese Life subscribed for 1.961 billion shares, corresponding to a capital contribution of 2 billion yuan. Among them, except for Chinese Life to subscribe for H shares, the rest of investors have subscribed for domestic shares. In addition, China Cinda and ICBC Investment have determined that the stake is a financial investment.

After the completion of the capital increase, the proportion of the above-mentioned five major investors in the total number of shares in the company was 23.46%, 18.08%, 4.89%, 2.44% and 2.44% respectively. Since Chinese Life already holds 1.65 billion domestic shares of China Huarong, after the completion of the capital increase, the company will hold a total of about 4.50% of Huarong's shares.

Up to now, the Ministry of Finance holds a total of 57.02% of China Huarong's domestic shares and H shares, which is in an absolute controlling position. After the capital increase, the shareholding ratio of the Ministry of Finance was diluted to 27.72%, and it is still the largest shareholder. China Huarong said the capital increase did not involve a transfer of control, meaning that the Ministry of Finance was still its actual controller.

However, Huarong also said that since the shareholding ratio exceeds 5%, CITIC Group and China Insurance Rongxin Fund will have the right to nominate directors to the company, which will ultimately be deliberated and decided by the company's board of directors and shareholders' general meeting. "Finance" reporters have previously learned that some senior executives of China Huarong are looking for other positions.

It is worth noting that due to the large scale of the fixed increase, the public shareholding ratio of the company will decrease from 32.42% to 18.23%, which is lower than the provision that the public shareholding ratio is not less than 25% in the listing rules of the Hong Kong Stock Exchange. In this regard, Huarong said that it expects to apply to the Hong Kong Stock Exchange for exemption first. After the completion of the capital increase, the public shareholding ratio will be in line with the listing rules by converting some domestic shares into fully outstanding H shares.

In addition, China Huarong announced the signing of an investment framework agreement with Sino-Ocean Capital Holdings Limited ("Sino-Ocean Capital"). In the latest disclosed formal plan, Sino-Ocean Capital was replaced by ICBC Investment. In this regard, China Huarong did not disclose the reason.

Accelerate the clearance of non-main business financial licenses

At the same time as announcing the war introduction plan, China Huarong announced that it would publicly transfer its equity interests in Huarong Golden Leasing and Huarong Xiangjiang Bank to further clean up the licenses of financial subsidiaries.

According to public information, Huarong holds 79.92% of the equity of Huarong Golden Leasing and 40.53% of the equity of Huarong Xiangjiang Bank, both of which are in the position of actual controllers. After the completion of the transfer, Huarong will no longer hold a gold lease license and a banking license. Previously, China Huarong has announced the transfer of all the equity interests held by huarong trading center, huarong consumer finance and huarong securities.

Among them, bank licenses are undoubtedly the most eye-catching. A number of interviewees told Caijing that as the only financial institution that can legally absorb demand deposits and issue loans, the bank license is one of the most attractive financial licenses. A financial industry analyst pointed out that there are already more than 4,000 banks in China, and the possibility of regulating the issuance of new banking licenses is low, but banking licenses are still scarce compared to China's huge economy.

In terms of transaction consideration, the announcement shows that the first listing price will not be lower than the asset appraisal result filed by the Ministry of Finance. As of the end of June 2021, Huarong Xiangjiang Bank had total assets of more than 400 billion yuan, achieved revenue of 6.153 billion yuan and net profit of 1.749 billion yuan in the first half of the year, and was in good operating condition.

It is worth noting that in recent years, the supervision has strengthened the supervision of shareholders of financial institutions, and the transfer of the above-mentioned financial subsidiaries requires regulatory approval. "Who is eligible to take over? That's a problem. The industry insider said. Earlier, it was reported that the Hunan provincial government was negotiating to hold Huarong Xiangjiang Bank in Changsha, but the news was not confirmed.

China Huarong said that the transfer of the equity of Huarong Golden Leasing and Huarong Xiangjiang Bank and the transfer arrangement previously disclosed is a specific measure to implement regulatory requirements, and is a normal equity transfer behavior that steadily promotes the slimming down of institutions, optimizes business layout, and comprehensively focuses on the main business.

Previously, China Huarong's aggressive expansion, one of the important aspects is the continuous acquisition of financial licenses, which once had a large number of financial licenses with high gold content such as banking, securities, trusts, consumer finance, financial asset management, insurance brokerage, etc., and actually became a huge financial holding company. After the Lai case, the regulatory authorities asked financial asset management companies, including Huarong, to "return to their roots and focus on the main business", so Huarong began to clean up financial licenses that were not related to the main business.

Huarong said that the company's sale of the equity of the financial subsidiary is conducive to supplementing the company's core Tier 1 capital, which will play a positive role in optimizing the allocation of resources in the main business of non-performing assets and consolidating the core competitiveness and market position of the company's main business.