Money Matters | Huarong’s HK$12 billion capital mill tells why state firms love listed shells
‘State companies compete for political and financial resources on the size of assets, not profitability’
Beijing’s tightening of capital outflows is slowing down various overseas investment, but not the interest in acquiring listed investment shells. Indeed, cash rich state-owned enterprises are replacing private entrepreneurs as buyers of these listed entities.
Huarong International Financial Holdings is a telling case of the magic a state company can play with a listed entity.
In March 2015, China Huarong – the country’s largest bad debt manager by asset size – spent about HK$500 million to acquire control of a listed shell, which is then renamed Huarong International.
That was only six months before its own public offering, leaving many to wonder why. The answer didn’t take long to reveal.
Huarong International has become a capital mill.
Riding on the credibility and therefore liquidity provided by the parent, it has loaned out at least HK$12 billion within a year, comparing to its 2015 loan and receivables of HK$912 million.
