S&P cuts China Huarong

S&P said it lowered the long-term issuer credit ratings on China Huarong Asset Management Co. Ltd. and its subsidiary China Huarong International Holdings Ltd. to BBB from BBB+. The agency also cut subsidiary China Huarong Financial Leasing Co. Ltd.’s rating to BBB- from BBB+.

S&P also removed all the ratings from CreditWatch with negative implications, where they were placed on April 9, and assigned a negative outlook.

“The downgrade of China Huarong reflects our expectation that the company's asset quality will remain weak. The pressure comes from its high proportion of stage 2 and stage 3 assets (mainly debt instruments at amortized costs), which surged to 41% at end-2020 from 22% at end-2018. The quality of some of these assets could deteriorate further, and warrant additional provisions despite the huge impairment allowance made in 2020,” the agency said in a press release.

This outlook reflects the pressure on the group’s leverage, given uncertainties over its recapitalization and asset disposal plan, besides falling regulatory barriers to entry into the distressed asset management sector, S&P said.

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