It has been nearly 11 weeks since Chinese business tycoon Lai Xoman, who was once called the God of Wealth, was executed in Tianjin, China, after he was accused in one of the largest corruption cases in China, at the heart of which is the Chinese government-controlled Huarong Asset Management Company.
But the man still loomed over one of the biggest corruption cases in China and raised more tension and anxiety among investors around the world from Hong Kong to London, as bewildering questions continue regarding whether the Chinese government repays about $ 23.2 billion of the bond money that Xioman borrowed, or is it? Will you leave investors alone with losses?
The reaction of the Chinese government will have tremendous consequences for its reliability in the international markets, as the default of Huarong will deal a severe blow to one of the basic strategies pursued by the Chinese government, which is the support provided by the government to its institutions.
Analysts say for Bloomberg that the Chinese company’s default will be a watershed moment in the history of credit markets in Asia and China. “It is unprecedented for a government-owned company like Huarong to default on its debt,” the head of credit strategies at Australian investment banks told the agency.
Since the crunching financial crisis that hit Asian markets in the 1990s, a crisis similar to what is happening with Huarong’s bonds has not surfaced at the present time, as the price of the company’s bonds, which is one of the subsidiary bonds associated with Chinese government companies, has reached levels among international investors. Record low, around 52 cents per bond.
Last Thursday, the Chinese company announced its willingness to pay debt payments of about $ 450 million for one of its bond issues that matures on April 27, at a time when a source told Bloomberg that the company plans to pay the payments by the due date without delay.
But the concerns related to default are growing, as the Chinese company owes investors at home and abroad with bonds valued at about $ 42 billion, at a time when the amount of payments owed by the company from those bonds is about $ 17.1 billion by the end of 2022.
Things did not go as planned for the Chinese company Huarong, which was established in the 1990s after the collapse of the Asian markets, as the company was established with the aim of containing a crisis and not creating a new one as it has been at present.
The aim of establishing the company at that time was to contain bad loans that were threatening the future of the Chinese banking sector, as the company was at the time a repository of bad loans in the billions obtained by companies affiliated with the control of the Chinese government.
Since Lai Shoman took over the leadership of the company in 2012, it has shifted its focus to focus on investment banks and real estate and has played an active role in the Chinese financial sector, whose assets are estimated at $ 54 trillion.
Before the company was listed on the Hong Kong Stock Exchange in 2015, it sold stakes in it to a group of investors, including global investment bank Goldman Sachs, for about $ 2.4 billion. Since the listing, the Chinese company’s share has declined by about 67%.
The grim truth
For Lai Xioman, things were going normally. A few months ago, no one expected the Chinese government to allow one of its most important investment arms ever to collapse.
The man, who was once a symbol of both wealth and power, was financing his ambitious expansion plan at a time when Huarong transformed into something like a bank giving loans to companies that could not meet the requirements of Chinese banks to obtain financing.
But the truth of the matter was black, as the vast majority of those loans did not respect the credit terms set by the Chinese authorities, which ultimately caused the collapse of Huarong and the tragic fate that Xioman met with death on the gallows.