(Bloomberg) -- China Huarong Asset Management Co. said state-owned Citic Group will replace the Ministry of Finance as its largest shareholder, marking the latest step in the overhaul of the troubled bad-debt manager. 

Citic Group will receive 2.41 billion domestic Huarong shares from the ministry to “optimize the layout of state-owned financial capital,” according to an exchange filing Tuesday. The transfer would increase Citic’s stake in Huarong to 26.46%, and bring the ministry’s ownership down to 24.76%. 

While Huarong remains a state-owned financial institution, the move would leave the company one step removed from direct government control -- a change that may unnerve some creditors. Huarong roiled Asian credit markets last year as it failed to release its annual report on time, eventually revealing a massive loss for 2020. 

Citic Group, one of China’s biggest state-owned conglomerates, initially took a 23.46% stake in Huarong in November after leading a group of investors in a $6.6 billion government-orchestrated bailout of the bad-debt manager. 

Huarong reported net income of 378.5 million yuan ($59.4 million) for 2021 on Tuesday, compared with a record loss of 102.9 billion yuan a year earlier.

Chairman Wang Zhanfeng said in a statement that 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. 

Shares of Huarong fell 1.4% in Hong Kong as of 9:44 a.m. The stock has slumped more than 60% since it resumed trading in early January, and investors remain jittery and divided over the industry’s long-term growth prospects.

Created following the Asian financial crisis in the late 1990s to safeguard China’s state-owned banks, Huarong and its peers expanded into everything from insurance and leasing to brokerage and trust through cheap borrowing from onshore and offshore markets, and turned into major shadow lenders themselves. 

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