China Minsheng Investment Group’s default, even if it happens, will have a limited impact on Hana Financial Group, which has made a series of investments in subsidiaries of China Minsheng Investment, one of China’s largest private-sector borrowers.
“Concerns over CMIG-related risks for Hana Financial appear to be excessive,” Kim Su-hyeon, an analyst at Shinhan Investment, wrote in a report on March 18. “Considering that the restructuring plans led by state-owned banks is taking place, no immediate risk is expected.”
Analysts and Hana Bank officials say it’s unlikely for CMIG to actually face a default, citing Beijing’s efforts to save the group.
“The Chinese government is showing a strong willingness to save the group and will carry out the restructuring plan from April,” a Hana official said. “Given that the plan is at the government level, it is unlikely that Hana will suffer losses.”
China Minsheng’s creditors working on a restructuring plan include the Export-Import Bank of China, China Construction Bank and city of Shanghai.
Samsung Securities analyst Kim Jae-woo, who also said the more plausible scenario is for the Shanghai-based company to resolve its credit issue under the government-led restructuring plans, expected losses to amount to 26 billion won ($22.9 million) in impairment losses for the stake the Korean bank holds and a slight increase in allowance for bad debts in the case of a default.
On Jan. 29, China Minsheng joined a long list of Chinese companies that missed bond repayment, sending shock waves through the global bond market as well as Korean lenders that invested in or executed loans to the group’s affiliates.
Hana’s total CMIG-related exposure is estimated to be about 360 billion won for its direct investments and 460 billion won including loans to the Chinese company’s subsidiaries.
In April 2015, it set up a joint venture with CMIG called CM International Financial Leasing, holding a 25 percent stake worth 132 billion won. In 2016, Hana also bought a stake worth $200 million in another subsidiary, CM International Holding, the group’s overseas investment unit.
Meanwhile, other Korean financial groups, including Shinhan Financial and Woori Bank, are also exposed to China Minsheng’s default, as they financed CMIG’s subsidiaries in loans, according to media reports.
While whether or not the Chinese conglomerate is saved by its government remains to be seen, it is facing more than 10 billion yuan ($1.5 billion) to pay back maturing debt and interest this year.
Korean lenders are now taking a cautious approach toward the Chinese market amid a chain of defaults in the world’s second-largest economy.
In 2017, Hana Bank was mulling to sell a stake of its Chinese unit to CEFC Shanghai International Group in 2017 before the Chinese company and its CEO fell under the scrutiny of the Chinese government. Beijing embarked on a crackdown on shadow banking, which resulted in the credit crunch for Chinese firms and arrests of leaders of companies that went on an investment splurge.
By Park Ga-young (firstname.lastname@example.org)