A Chinese state-owned company in the midst of a sweeping corruption crackdown has unveiled a list of its clients, revealing that it has been lending to a number of well-known conglomerates that are being investigated or scrutinized by the authorities.
Mysterious Chinese lender reveals list of scandal-hit clients
Huarong Asset Management is the biggest of China’s managers of bad loans. At least, that’s what it was established in 1999 to do. But in recent years, it has grown to become a big lender in its own right.
Last week, China’s anti-graft watchdog put Huarong’s chairman Lai Xiaomin, 55, under investigation for suspected corruption. No other details were provided.
Brock Silvers, managing director of Kaiyuan Capital in Shanghai, told Inkstone that Huarong’s problems were a sign of the Chinese government’s lack of success in dealing with bad loans and reforms of state-owned enterprises.
“Continued delay only increases the risk of a serious future shock to the banking system as a whole. Perhaps the current deleveraging campaign will allow BJ to finally make progress with non-performing loans,” he said. “Similar problems, however, will recur as long as access to capital is allocated by anything other than market forces.”
Last year, Chinese regulators started to tackle high levels of corporate debt that they believe could pose risks to the financial system. It’s been getting harder for Chinese companies to borrow, as banks get choosier about lending.
According to the Huarong list of lenders, which was distributed internally, it had been lending – to among others – CEFC China, HNA Group and the Hanergy Group.
CEFC China is an oil conglomerate with an annual revenue of $43 billion whose founder Ye Jianmin has disappeared, and is believed to have been detained for alleged economic crimes.
The HNA Group is one of China’s biggest companies. It’s now mired in debt and has been offloading stakes in Hilton Hotels & Resorts and Deutsche Bank, after going on a $50 billion global shopping spree in the last two years.
As for Hanergy, its founder Li Hejun was once China’s richest man. But the company defaulted on $158 million worth of bonds two years ago. Li is now barred from managing any company in Hong Kong for eight years.
Other clients include Dandong Port in northeastern China, which defaulted on $150 million worth of bonds last year.
The Financial Times reports that the investigation into Huarong has spread into Hong Kong, a semi-autonomous Chinese city that is also a global financial center. As part of the probe, the passports of some employees have reportedly been confiscated, which would be a breach of the city’s employment ordinance.