Huarong sells stake ahead of planned IPO

Consortium of eight investors buys 20.98% share in nation's largest bad-debt manager

China Huarong Asset Management Co, the nation's biggest bad-loan manager in terms of total assets, announced on Thursday a stake sale to a consortium of eight investors which includes its existing shareholder China Life Insurance (Group) Co (CLIC), ahead of a planned IPO.

Huarong's stake sale, equivalent to 20.98 percent of its total shares after an investment totaling 14.54 billion yuan ($2.36 billion) from the consortium, has won approval from the State Council, the country's cabinet, said an announcement posted on the website of US private equity firm Warburg Pincus, one of the investors.

The buyers also include CITIC Securities International, Malaysia's state investment arm Khazanah Nasional, China International Capital Corporation (CICC), China National Cereals, Oils and Foodstuffs Corporation (COFCO), privately owned conglomerate Fosun International and US investment bank Goldman Sachs Group.

After the deal, Huarong will select an appropriate time for an IPO, according to the announcement.

Its Chairman Lai Xiaomin said in April 2013 that the firm wants to get listed no later than 2016.

Currently, the bad-loan manager is 98.06 percent owned by the Ministry of Finance, with the remaining 1.94 percent held by CLIC.

With diversified financial channels and healthy debt structure, "China Huarong can obtain stable and low-cost capital, laying a solid foundation for achieving sustainable profit growth," David Li, managing director of Warburg Pincus who is responsible for the firm's investment activities in the Asia-Pacific region, told the Global Times on Thursday in a statement, speaking of the deal.

The stake purchase was the largest single investment for Warburg Pincus in China, according to Li. He didn't reveal the exact stake taken by the company, or by any investor in the consortium.

In a statement sent to the Global Times on Thursday, Fosun said it hopes to cooperate with Huarong in areas ranging from asset management, fundraising and investment banking to financial leasing.

Fosun also didn't disclose the exact amount of its stake in Huarong.

Huarong, CLIC and Goldman Sachs could not be immediately reached for comments.

Calls to a COFCO spokesman went unanswered, while spokeswomen for CITIC Securities and CICC declined to comment when contacted by the Global Times on Thursday.

Khazanah Nasional has yet to reply to questions e-mailed by the Global Times.

As one of the country's four State-owned asset management firms set up in 1999 to manage nonperforming loans of the country's State lenders, Huarong was restructured into a joint stock holding group in 2012 to prepare for a public listing.

In January, Huarong reported 10.09 billion yuan in net profit for 2013, a jump of 44.47 percent from the year before.

A faltering recovery of the economy has fueled market expectations of continued buildup of nonperforming loans, improving the business prospects of bad-loan managers such as Huarong.

In an indication of mounting pressure on lenders, the nation saw a plunge in both new yuan loans and total social financing for July, which was in part due to rising concerns over loans that turn sour.

"The banking sector is set to come under sustained pressure [of asset quality]," Xu Bo, an analyst at Bank of Communications in Shanghai, told the Global Times on Thursday.

Huarong's stake sale is also seen as part of broad-based efforts to make the country's financial institutions more market-oriented.

The push for mixed ownership of domestic State-owned financial institutions with investment from more private and overseas investors will align the State financial service providers with the market principles, Zhao Xijun, deputy head of the Finance and Securities Research Institute at Renmin University of China, told the Global Times on Thursday.

Before Huarong's move to become more market-oriented, China Cinda Asset Management Co was floated in Hong Kong in December 2013 after it had raised $1.6 billion through a stake sale to a group of investors that included China's National Social Security Fund and British investment bank Standard Chartered.

China Orient Asset Management Corp and China Great Wall Asset Management Corp, the other two State bad loan managers, are also seen making efforts to let the market play a greater role in their operation.