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November 21, 2009

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Huarong tries to solve US$46b bond obligation

HUARONG Asset Management Co, which manages billions of dollars of bad debt spun off from the Industrial and Commercial Bank of China in the 1990s, is still working on a plan to address a massive bond obligation that comes due this year, its top executive said yesterday.

ICBC owns 10-year receivable bonds with a face value of 313 billion yuan (US$45.85 billion), issued by Huarong Asset Management Co in exchange for ICBC's debt at face value as part of a government restructuring of China's banking system.

"For the interest, we have no problem," Lai Xiaomin, president of Huarong Asset Management Corp, said on the sidelines of a conference. "But we are now studying how to pay the principal."

ICBC Chairman Jiang Jianqing said in an interview last week that the bank was "still discussing" what to do with the bond, which has not yet expired.

In late September, another asset management company, Cinda, extended by 10 years the maturity of a US$36-billion bond due to China Construction Bank.

The banks believe that the AMC bonds are backed by state guarantees, but some analysts question whether banks might have to bear some of the burden in case of default. The bonds are a relic of China's economic reform in the late 1990s.


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