State Owned Central Enterprises Intend To Take Over China Huarong Securities Business License

China Huarong, which failed to disclose its annual report on time, is planning to sell its assets again.

Recently, according to the 21st century economic report, the reporter learned from a number of people close to the transaction that China Guoxin Holding Co., Ltd. (hereinafter referred to as "Guoxin Holdings") is negotiating with China Huarong on the acquisition of its Huarong securities.

According to public information, China Huarong is one of the four major asset management companies (AMCs) approved by the State Council at the end of the last century and is still controlled by the Ministry of finance. After years of development, China Huarong assets territory has expanded rapidly, and Huarong securities is the only securities company license it holds.

At present, for the news of Guoxin holding's acquisition of Huarong securities, both sides expressed "unclear" on the 21st century economic report.

However, some people from the four AMCs believe that the sale of securities license of Huarong has something to do with the current embarrassing environment.

"I feel that the two licenses of securities companies and banks are the last and least wanted to be sold by Huarong," said the person.

Guoxin holding is in talks with China Huarong on the acquisition of its Huarong securities. Visual China

In recent years, it has been in the throes of transformation

"Huarong's life is not so good now." The above-mentioned four AMC people have always talked about this sentence in an interview with the 21st century economic report.

On November 1, 1999, China Huarong Asset Management Company, the predecessor of China Huarong, was established. It is one of the four AMCs approved by the State Council. Its original intention is to clean up the bad and bad debts accumulated in the process of China's economic system reform and transformation. Among them, the large amount of non-performing assets generated by excessive lending of commercial banks is the main content of the four AMCs.

However, in the process of development, the four AMC businesses are not limited to the disposal of non-performing assets.

In 2004, the Ministry of Finance issued the measures for risk management of financial asset management companies, and the four AMC businesses gradually shifted from policy to commercialization. It was during this period that the four AMCs all started the process of financial expansion, among which China Huarong developed most rapidly.

Only from the statement on the official website of China Huarong, at present, China Huarong owns many operating subsidiaries, such as Huarong securities, Huarong financial leasing, Huarong Xiangjiang bank, Huarong Trust, Huarong futures, Huarong Rongde, Huarong Industrial, Huarong international, Huarong consumer finance, etc. With various types of licenses, China Huarong provides financial services such as non-performing asset management, asset management, banking, securities, trust, financial leasing, investment, futures, consumer finance, etc.

However, China Huarong, which is in the stage of rapid development, was suddenly stopped because of Lai Xiaomin's case.

On the evening of April 17, 2018, Lai Xiaomin, former party secretary and chairman of China Huarong, was under disciplinary review and supervision due to his personal suspicion of serious violation of discipline and law.

During Lai Xiaomin's tenure, China Huarong transformed from an asset management company at the beginning of its establishment into a fully licensed financial holding group, vigorously developing non-performing asset business.

According to the prospectus of China Huarong secondary capital bonds in 2017, in 2014, 2015 and 2016, the proportion of non-performing assets business income in total revenue decreased year by year, accounting for 56.1%, 53.9% and 53.2% respectively, and the proportion of pre tax profit in the group's total pre tax profit was 55.7%, 53.7% and 52.1% respectively.

Wang Zhanfeng, who succeeded Lai Xiaomin as the chairman of China Huarong, has repeatedly asked the company's business development to return to its origin, focus on the main business of non-performing assets management, adjust the development mode and business model, spare no effort to prevent and resolve key risks, and effectively improve the ability to serve the real economy. Since then, China Huarong has been in the throes of transformation.

According to the interim performance announcement of China Huarong in 2020, during the reporting period, the company realized a total revenue of RMB 45.688 billion, a decrease of 19.6% compared with the same period of last year, net profit of 792 million yuan, a decrease of 71.8% over the same period of last year, and the net profit attributable to shareholders of the company was 210 million yuan, a decrease of 91.7% compared with the same period of last year.

Compared with the annual report of 2017, China Huarong's net profit attributable to shareholders of Listed Companies in that year was RMB 21.993 billion, an increase of 12.1% year-on-year. The impact of divestiture of financial business on the company's performance can be seen.

More seriously, by the end of June 2020, China Huarong's total assets were 173.514 billion yuan, and the corresponding asset liability ratio was as high as 90.30%. In 2021, China Huarong was downgraded by standard & Poor's, Moody's and Fitch's three major international rating agencies due to the delay in publishing its annual report, and was listed in the negative rating watch list.

Forced to shrink financial territory

On the one hand, the debt ratio is more than 90%, and on the other hand, the regulatory requirements for the return to the main business. In this context, China Huarong has to choose to shrink its financial territory and open the "sell sell sell" mode.

In 2020, China Huarong announced that it would transfer 91% shares of its Huarong Huaqiao Asset Management Co., Ltd., which contains a large number of equity investment and industrial investment enterprises. Huarong explains it as "integrating subsidiaries", which can be regarded as one of the layout of the company returning to the main business. Earlier, Huarong also publicly transferred 75% of the equity of Huarong Kunlun Qinghai Asset Management Co., Ltd., the only asset management company with AMC license in Qinghai Province, and disposed of a large number of shares of Hong Kong stock companies held by Huarong in 2020.

"Now AMC is to sell a subsidiary if it feels that it has a weak relationship with the main business, and if it is not well managed, it will sell it." The four AMCs said.

But in the view of industry insiders, China Huarong's disposal of financial assets has far exceeded the actual needs.

According to the 21st century economic report, the reporter learned from a number of people close to the transaction that China Guoxin Holding Co., Ltd. (hereinafter referred to as "Guoxin Holdings") is negotiating with China Huarong on the acquisition of its Huarong securities. Another person close to China Huarong said that a number of Group subsidiaries including Huarong securities, Huarong Xiangjiang bank, Huarong Trust, Huarong consumer finance, Huarong financial leasing and other group subsidiaries will be "dealt with". "For example, Huarong Trust is also in contact with the seller, and is currently under discussion, and the receiving party is still highly confidential."

"Personally, I think that the two license plates of securities companies and banks are the last and least wanted to be sold by Huarong." In the view of the above-mentioned four AMC people, the bank and securities company license is closely related to the disposal of non-performing assets in the main business of AMC, and the related securitization of non-performing assets needs to be realized through the license of securities company“ Now AMC wants to transform. The subsidiary companies of securities companies can provide ABS business and the service of purchasing business in primary market, which can not only return to the main business, but also bring income. "

At present, China Huarong directly holds 71.99% equity of Huarong securities, ranking the first largest shareholder. The second and third largest shareholders of the company are Guangzhou state owned Assets Development Holding Co., Ltd. and China Gezhouba Group Co., Ltd., with shareholding ratios of 10.24% and 4.07%

From the previous ranking of securities companies in the first half of 2020 issued by the China Securities Association, Huarong securities achieved an operating income of 788 million yuan and a net profit of 221 million yuan in the current period. The overall performance was not excellent, but the profitability was still in the middle of the industry.

In addition, Huarong securities also has three subsidiaries, namely, Huarong Ruize Investment Management Co., Ltd., Huarong Futures Co., Ltd., and Huarong Fund Management Co., Ltd., which includes three major licenses of asset management, futures and public funds, which are full of gold.

"The pressure of the regulatory requirement to return to the main business is that on the one hand, there are still too many loopholes in the group, and how to repay debts without selling high-quality assets." The four AMCs said.

The potential takers have strong financial strength

China Huarong's complex transformation situation means a good opportunity for other enterprises that intend to include the securities business license into the bag. At present, it is negotiating with China Huarong, and Guoxin holdings, which is considering the acquisition of Huarong securities, is one of them.

According to public information, Guoxin holdings was established on December 22, 2010, and is one of the central enterprises supervised by the state owned assets supervision and Administration Commission of the State Council. At the beginning of 2016, it was determined as a pilot state-owned capital operating company by the state-owned enterprise reform leading group of the State Council. By the end of 2020, the total assets of the company reached 563.4 billion yuan, with a net profit of more than 16 billion yuan, a year-on-year increase of 57.7%.

At present, Guoxin holding has a fund investment plate with China's state-owned capital venture capital fund as the core. In terms of financial services, Guoxin Holdings has 7 major financial and quasi financial institutions, including commercial factoring, financial leasing, financial companies, insurance brokers, financial services companies and credit rating. Dagong international, the well-known holding subsidiary, holds 58% of its shares.

After comparison, it can be found that the existing securities dealers, asset management, futures and mutual fund licenses of Huarong securities are the areas that need to be supplemented urgently in the financial territory of Guoxin holdings.

However, under the influence of the parent company, Huarong securities is still in continuous shock.

After the case of Lai Xiaomin, in November 2019, Zhu Xianzhong, former Secretary of the Party committee of Huarong securities, was sentenced to stay in the party for two years and was demoted to senior manager level employee. In October 2019, Beijing Securities Regulatory Bureau approved Zhang Haiwen, former party secretary and director of Tianjin Securities Regulatory Bureau, as chairman of Huarong securities.

In August 2020, Tong Yan, who once served as director of issuance supervision department, director of comprehensive department, assistant to President of Shanghai Stock Exchange and vice president of Minsheng securities, was appointed general manager of Huarong securities. However, just four months later, Huarong securities issued an announcement, which was approved by the Fifth Board of directors of the company. Zhang Haiwen performed the duties of general manager of Huarong securities on behalf of him and removed Tong Yan from his post.

In addition, the personnel and organizational structure of Huarong securities are also undergoing adjustment, with the total number of employees falling from 2190 in 2017 to 1714 in 2019. Just in January this year, Huarong securities was interviewed by Beijing Securities Regulatory Bureau and asked to clarify the disposal plan as soon as possible due to the problems such as no obvious effect on the disposal of historical risk assets and insufficient pressure drop on asset management scale. If the disposal plan is not clear, the incremental business of Huarong securities asset management may be suspended.