Not long after Mr. Lai was executed, Huarong gripped headlines again when it said that it would delay publishing its annual results in March. It delayed its annual results a second time last month, raising worries about the state of its financial health and its ability to repay investors.
Any situation where Huarong is unable to repay in full its investors would ripple through some of the world’s biggest and most high profile investment firms. As the international financial market grappled with that scenario, the bonds recently went into a tailspin.
This year alone, Huarong owes $3.4 billion to foreign investors. After it delayed releasing its annual results, the bonds sold for as little as 60 cents for every dollar. In Hong Kong, its stock was suspended.
It is already very late for a big corporate reorganization, said Larry Hu, head of the China economics desk at Macquarie Group. “Huarong has already become too big to fail,” he said. “It is no longer a fix to the problem, but the problem itself.”
The government’s latest plan, which has not yet been reported, is likely to roil China’s corporate market. Last month, the broader market for Chinese companies started to wobble as anxious investors began to consider a possible contagion effect.
Chinese companies owe nearly $500 billion in loans to foreign investors. A Huarong default could lead some international bondholders to sell their bonds in Chinese state-owned enterprises, and make it more difficult for Chinese companies to borrow from foreign investors, a critical source of funding.
Concerns about the company’s ability to raise fresh money prompted two ratings agency to put Huarong on a “watch” notice — a type of warning that means its debt could be downgraded, a move that would make its ability to borrow even more costly.