CITIC Group, one of China’s biggest State-owned conglomerates, will replace China’s Ministry of Finance as the largest shareholder of bad debt manager China Huarong Asset Management Co., marking the latest step in the overhaul of the troubled Hong Kong-listed firm.

CITIC Group will receive 2.41 billion domestic China Huarong shares from the Ministry of Finance to “optimize the layout of State-owned financial capital,” China Huarong said yesterday.

The transfer would increase CITIC’s stake in China Huarong to 26.46% and bring the ministry’s ownership down to 24.76%.

While China Huarong remains a State-owned financial institution, the move would leave the firm one step removed from direct government control, a change that may unnerve some creditors.

China Huarong roiled credit markets last year as it failed to release its annual report on time, eventually revealing a massive loss for 2020.

CITIC Group initially took a 23.46% stake in China Huarong in November after leading a group of investors in a US$6.6 billion government-orchestrated bailout of the bad debt manager.

China Huarong reported net income of 378.5 million yuan (US$59.4 million) for 2021 yesterday, compared with a record loss of 102.9 billion yuan a year ago.

Chairman Wang Zhanfeng said in a statement that China Huarong has stabilized its business and improved risk management in the past year, but he added that 2022 presented more challenges.

The company faces a “more complex, severe and uncertain external environment in the post-pandemic era,” Wang said.

Created following the Asian financial crisis in the late 1990s to safeguard China’s State-owned banks, China Huarong and its peers expanded into everything from insurance and leasing to brokerage and trust through cheap borrowing from onshore and offshore markets. (SD-Agencies)