HONG KONG -- Embattled state-owned debt buyer China Huarong Asset Management received shareholder approval on Tuesday to exit a unit, restructure another and appoint a new executive director as it confronts its own default deadline.
The moves are intended to shore up Huarong's finances and refocus the company on its core business of buying and managing distressed debt from Chinese banks. The asset manager's shares in Hong Kong have been suspended since it failed to report its 2020 results at the end of March, which also sparked a rout of its bonds
Huarong is shaping up to be a test case for the restructuring of a Chinese state-owned enterprise. Over the last year, China has let state-run companies default on bonds as it moved to debunk the expectation of implicit guarantee that had emboldened investors to throw money at overextended borrowers.
Shareholders at Tuesday's extraordinary general meeting unanimously agreed to a public transfer of its 70% stake in Huarong Consumer Finance to external parties, the company said in a statement.
They also approved negotiating a debt-to-equity swap with institutional creditors of Huarong Trust, as well as changing the use of remaining proceeds from the 2015 initial public offerings to support subsidiaries.
Investors holdings about 83% of the company cast their vote at the meeting, Huarong said. The shareholders also approved the appointment of asset management industry veteran Liang Qiang as executive director. Liang, Huarong's new president, was most recently the president of rival Great Wall Asset Management.
The company said its shares will remain suspended till further notice. Huarong, which has more than $43 billion in bonds outstanding, had previously said business operations were continuing as normal and it was working with auditors to finalize the accounts for 2020.
While Huarong has so far managed to meet all bond redemptions on time, a default could rattle investors and spark a widespread sell-off in China debt. The company has until the end of this month to report its financial results to avoid a technical default, S&P Global Ratings has said.
Concerns surrounding Huarong have mounted since 2018, when then-Chairman Lai Xiaomin was arrested. He was found guilty of accepting bribes and bigamy and executed in January less than a month after his sentencing. Most of the asset manager's troubles stem from excesses during his term, when Huarong used easy access to cheap funding to expand into unrelated businesses.
Huarong, one of four big distressed debt managers set up by Chinese authorities in 1999 to help the nation's banks grapple with bad loans, had 1.73 trillion yuan ($267 billion) in assets and 1.37 trillion yuan in interest-bearing liabilities as of June 2020.
Its core business of buying and restructuring soured loans makes up only about half of its total assets, with banking, securities trading, trusts and other investments comprising the rest of its funds under management, according to its June 2020 interim report.
Media reports previously indicated China was considering various measures to save Huarong, such as investments or a bailout by state companies or placement under a holding company.