Fitch becomes the first of the big three global credit rating agencies to downgrade the troubled Huarong after the state-owned distressed asset manager missed the deadline to release its 2020 results.
Fitch cut China Huarong Asset Management’s credit ratings by three levels – from A to BBB – adding that further downgrades could follow if mainland government support remains unclear.
«The government may continue to have a high incentive to provide extraordinary support, considering China Huarong's policy role and the potential contagion risk for the refinancing of similar policy-driven GREs (government-related entities), but Fitch believes timely indication of support has not yet materialized,» the rating firm said in a statement.
Offshore Funding
Amongst the key concerns Fitch highlighted was «increasing uncertainty over the company's liquidity» particularly with regards to offshore funding.
According to Bloomberg data, Huarong has around $23.3 billion of outstanding offshore debt, of which $4.2 billion matures through the end of this year.
China’s largest bad debt manager – majority-owned by the Ministry of Finance – is reportedly mulling various options to resolve its credit challenges such as offloading unprofitable non-core businesses, assumption of over 100 billion yuan ($15.4 billion) of assets by the central bank or the transferral of ownership to Central Hujin Investment, a unit within China’s sovereign wealth fund.
