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SHANGHAI, April 29 (Reuters) - Moody’s downgraded the local and foreign currency long-term issuer ratings of state-owned bad loan company China Huarong Asset Management on Thursday, citing its “weakened funding profile due to market volatility”.
After the cut to Baa1 from A3, China Huarong’s ratings remain on review for a further downgrade amid heightened uncertainty surrounding it, Moody’s Investors Service said.
The one-notch downgrade is more moderate than the action taken earlier this week by Fitch Ratings, which downgraded Huarong’s long-term rating by three notches to ‘BBB’, and pushed ratings on some of its debt below investment grade.
Huarong, which counts the Ministry of Finance as its biggest shareholder, is one of China’s four big distressed asset management firms.
After failed investments and an aggressive expansion Huarong has been in restructuring talks since 2018. Its former chairman, Lai Xiaomin, was executed in January after a graft probe.
Its shares had a market value of some $5 billion before they were suspended and its bonds have been under pressure after it delayed its results on March 31, citing the need to finalise a “relevant transaction”.
Huarong and its subsidiaries have outstanding offshore bonds totalling more than $20 billion. Sources familiar with its restructuring plans have told Reuters that regulators have asked some banks not to withhold loans to the firm, as part of support measures to stabilize its cash flow.
A subsidiary, Huarong Finance 2017 Co, repaid the principal and interest on a S$600 million bond on time on Tuesday, while Huarong Rongde Asset Management Co, repaid a maturing onshore exchange-traded corporate bond this week.
Still, foreign investors are concerned about the potential impact of the restructuring plans on the world’s second-biggest bond market.
Bids on a $250 million perpetual bond issued by Huarong Finance 2019 Co Ltd were last quoted on Refinitiv at 54 cents, half the levels at the start of April.
Denis Girault, head of emerging markets fixed income, Union Bancaire Privée (UBP), said he believed the Beijing is trying to find a solution to Huarong’s problems.
“And, at the same time, find a way not to send too strong a message that will let people think that they will intervene and help every single company in China. So, it’s the right balance that they are trying to find out right now,” he said. (Reporting by Andrew Galbraith and Vidya Ranganathan Additional reporting by Tom Arnold in London; Editing by Alexander Smith)