Huarong is still in deep water. Does it have a way out?

Huarong missed the original March 31 deadline for filing its 2020 earnings, which led to the value of the company’s bonds dropping over concerns that a default could cause foreign investors, such as Goldman Sachs, to lose money.

• China Huarong Asset Management Co., the distressed asset management company that was once a financial leader in China, is facing trial after trial.

• It’s been six months since the execution of chairman Lai Xiaomin and the company is now apparently struggling to produce its 2020 financial records.

What happened at Huarong?

• Here’s a quick recap of everything we know so far: Huarong is a state-run distressed asset management company that was founded to help the Chinese economy.

• Basically, Huarong acquired bad debt from other companies in order to try to make sure that these companies had clean books.

• Well, behind closed doors, Lai Xiaomin, the chairman and leader of Huarong, started to get a little greedy. Lai extorted money and took bribes, rather than helping to pay off the bad loans.

• In the end, Lai was executed for his crimes and the company had to figure out a way to clean up all the mess that had been created during this time.

• The biggest thing Huarong was asked to do was provide a summary of its 2020 financial results.

How does Huarong even make money?

• Most of the company’s profits come in the form of bonds.

• The company acquires bad debt from other businesses and pays off this debt by issuing bonds to investors.

• Bonds are basically a company’s way of saying, “We need money, and we will pay you back with some extra once we make more money with your money."

• Huarong has a lot of investors that have acquired bonds and those investors are looking to see how much money they have made.

• This is where the 2020 financial report comes in.

What’s up with the 2020 financial report?

• Huarong missed the original March 31 deadline for filing its 2020 earnings, which led to the value of the company’s bonds dropping over concerns that a default could cause foreign investors, such as Goldman Sachs, to lose money.

• When the company missed its first deadline, its shares were suspended from trade on April 1. But Huarong recently said that operations are normal and that it has been providing relevant information to auditors.

• The firm, without providing much information on the matter, said it intends to sell its 79.6% stake in Huarong Zhongguancun Distressed Asset Exchange Centre Co. in order to recover from some of the bad debt it has collected.

• While that may be all good, the problem is that Huarong still can’t deliver on the financial report and it isn’t clear the company knows when the report will be ready.

• “However, given that the relevant transaction of the Company has not been finalised, neither the Company nor the Auditor is currently able to estimate the time required for completion of the 2020 Annual Results or to finalise the expected timetable for the publication,” the company said.

What comes next for Huarong?

• Despite still not being able to release its 2020 financial report, Huarong’s transparency on the matter is extremely important considering the company’s history.

• The company has also officially nominated Liang Qiang as president and executive director of its board, which is an important milestone for the company as it aims to move past these recent scandals.

• The company also says that despite not being able to release the report, this doesn’t not mean that it cannot pay its loans.

• Huarong pointed out that it “has been conducting its business operation on a normal basis. No material change has been found in the Group’s business operation” since April 1.

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