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BOCOM International:Upgading China Huarong to Buy Rating

Moodys & S&P:Maintaining Stable Outlook for China Huarong

01/06/2018

  According to report by BOCOM International published on April 23, due to the resignation of its former chairman and change in management, share price of China Huarong tumbled after it resumed trading on Friday. The BOCOM International believes the four Asset Management Companies (AMCs) will continue take the lead in distressed asset business, and estimates that the change at management would not affect the companys capital replenishment plan. China Huarong has strong position in acquisition-and-restructuring business with high provision coverage level, and in 2018 the company has emphasized its business strategy towards high-quality development.

  BOCOM International estimates that the ROAE of China Huarong will surpass Cinda and other large commercial banks, with profit growth reaching around 10%. The BOCOM suggests to draw attention to the investment opportunity brought by the fall in share price and raised its rating on China Huarong to a buy rating with a price target slightly down to HK$3.7.

  On April 20, 2108, Moodys affirmed Huarongs A3/P-2 ratings with a stable outlook. Moodys believes that Huarong will continue to receive a very high level of support from the Government of China given that Huarong plays a strategic role in Chinas economic rebalancing and in maintaining the stability of the financial system. This very high level of support will help offset the downward pressure on the companys BCA from its rapid asset growth, expansion in offshore business and recent corporate governance issue. In addition, Moodys expects Huarongs capital management to improve as a result of the new capital regulation for Chinas four state-owned distressed asset management companies published in December 2017.

  S&P Global Ratings said on April 18 that its issuer credit ratings on China Huarong and its Hong Kong-based subsidiary China Huarong International Holdings Ltd.(BBB+/Negative/A-2) are not immediately affected.

  S&P does not expect a meaningful impact on the companys creditworthiness. China Huarong is a government-related entity with a very high likelihood of extraordinary government support.The company is 63.36% owned by the Ministry of Finance, which has a heavy influence over China Huarongs business strategy and maintains oversight on the companys governance and management. The company has appointed senior banking regulator Mr. Wang Zhanfeng as the new party secretary. Ms. Li Xin, deputy party secretary at China Orient Asset Management Co. Ltd., has been appointed China Huarongs new president.

  S&P expects China Huarongs capital replenishing plans to be steadily implemented within one to two years. China Huarongs large market share in the core distressed asset business continues to underpin its strong business position and to solidify its role for the government as an instrumental player in Chinas financial stability net.

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