(Yicai Global) Nov. 18 -- China Huarong Asset Management is selling CNY42 billion (USD6.6 billion) of new shares as the country’s biggest distressed debt manager struggles to clear its own debts. The firm has also just gained permission to issue bonds worth CNY70 billion (USD11 billion).

Citic Group, China Insurance Rongxin Fund, China Cinda Asset Management and ICBC investment will subscribe to 18.82 billion, 14.51 billion, 3.92 billion and 1.96 billion worth of new shares at a price of CNY1.02 (USD0.16) each, while China Life Insurance will buy 1.96 billion of its Hong Kong-listed stock at the equivalent price, the Beijing-based asset manager said yesterday.

After the share sale, the firm’s largest shareholder will remain the Ministry of Finance, but its stake will be diluted to 27.76 percent from 57 percent. Beijing-based Citic will hold 23.46 percent equity, the Rongxin Fund 18 percent, Cinda 4.89 percent and both ICBC investment and China Life will have 2.44 percent. The public will hold the rest.

Earlier this week, the firm was also given the green light to issue CNY70 billion in financial bonds. The China Banking and Insurance Regulatory Commission requested that the funds be used to acquire and dispose of non-performing assets and debt-to-equity swaps. It also told the firm to strengthen oversight of the funds used.

Following a huge bribery and corruption case involving former Chairman Lai Xiaomin, who was executed in January, Huarong’s hidden asset risks gradually came to light. The company secured a state-backed bailout led by Citic in August and said it had fallen into the red last year by CNY103 billion (USD16.1 billion).

But Huarong returned to profit in the first half, reporting a gain of CNY158 million (USD24.7 million), according to its earnings results published in August. This is still a long way from the same period in 2017 when it raked in profit of CNY26.6 billion (USD4 billion).

The Chinese government set up four major asset management companies in 1999, including the predecessors of Huarong and Cinda, to defuse systemic financial risks at state-owned banks and tackle non-performing policy assets separated from state capital. Huarong transformed into a financial holding group in 2012 when Lai became its chairman.

Editor: Kim Taylor