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Moody's lowers outlook on China Huarong Asset Management to negative

Moody's lowered its outlook on China Huarong Asset Management Co. Ltd. to negative from stable and downgraded its baseline credit assessment to "b1" from "ba3."

The rating agency said Sept. 6 that it also affirmed the company's long-term issuer rating at A3 and its short-term issuer rating at P-2.

In addition, the rating agency lowered the outlooks on Huarong Finance 2017 Co. Ltd., Huarong Finance Co. Ltd. and Huarong Finance II Co. Ltd. to negative from stable.

The lowered outlook reflects uncertainties regarding China Huarong Asset Management's asset quality, capital and profitability amid a continuing investigation into the company's former chairman, Lai Xiaomin, and its impact on the company.

China's Central Commission for Discipline Inspection said in April that Lai was under investigation due to "serious violations of discipline."

The downgrade of China Huarong Asset Management's baseline credit assessment reflects its weakened capital position due to rapid expansion before 2018, its significant decline in profitability and the deterioration in its asset quality, Moody's said.

The affirmation of China Huarong Asset Management's ratings takes into account the rating agency's view that the company will continue to receive a very high level of support from the Chinese government due to its government ownership and policy role.

Moody's said that the outlook on the company could return to stable if there is evidence that the ultimate losses resulting from the investigation on its former chairman will not dampen its earnings and capitalization significantly. It could also result from the company improving its asset quality and recovering its profitability, enhancing its capital position through equity financing and demonstrating an improvement in its corporate governance and internal controls.