SHANGHAI/HONG KONG (Reuters) - China’s biggest manager of bad debts is trying to exit early from at least three loans and investments as it wrestles with a liquidity crunch triggered by an anti-corruption probe into its chairman, people with knowledge of the matter said.

FILE PHOTO: Logos of China Huarong Asset Management Co are seen during a finance expo in Beijing, in this October 30, 2014 file photo. REUTERS/China Daily/File Photo

China Huarong Asset Management 2799.HK, one of four state-backed so-called "bad banks" formed in 1999, has been trying to raise cash since Lai Xiaomin resigned as chairman in April amid a graft probe, the sources said.

Huarong’s attempts to call back loans shows the extent of its liquidity woes. It has already begun divesting equity stakes that were bought as part of a diversification push and has also forced employees to take pay cuts.

Huarong did not respond to calls, emails and faxed requests for comment.

The asset manager is the latest major Chinese company to struggle in the wake of allegations of misconduct by its leader. Others include CEFC China Energy and Anbang Insurance, both of which are now undergoing government restructuring.

The exact nature of the allegations against Lai remain unknown, but sources with knowledge of the matter said the investigation had slowed down operations at China’s largest asset management firm and forced it to be cautious about taking on new business.

When a firm comes under investigation, “it’s possible that the efficiency of business will fall, which leads to a liquidity squeeze,” said Meng Shen, director of Chanson & Co, a boutique investment bank.

Shortly after the investigation became public, Huarong asked one fund to return millions of dollars it invested only a few months earlier, citing liquidity issues, one person with knowledge of the matter said. The fund is trying to negotiate early payment of management fees in return for the early termination, the source said.

And a multi-year loan of just under 2 billion yuan ($296 million) to a medium-sized developer made by Huarong via a Shanghai branch of a trust firm this year is another deal the bad debt manager is trying to exit, said a second person with direct knowledge.

Huarong has approached the developer directly and is currently trying to negotiate an early exit, citing liquidity issues, said the person. Since the investigation, the trust firm, which usually receives regular business from Huarong, has received no new deals from the asset manager, he added.

In another instance, Huarong has been trying to offload some loans in Hong Kong, including its portion in a two-year HK$5.81 billion syndicated loan to Huge Group Holdings Limited, a major shareholder of China Grand Auto's 600297.SS, again citing liquidity concerns, said two separate people with direct knowledge who have been approached as buyers.

The loan was drawn down in August last year, the people added.

Two other people have also been informed of Huarong’s liquidity concerns.

Huge Group did not respond to requests for comment. The sources declined to be named because they were not authorized to speak to the media.

PROBES

The investigation by China’s anti-corruption watchdog into Huarong’s ex-chairman Lai is expected to finish this month, two people said. Senior bank regulatory official Wang Zhanfeng was confirmed as Huarong’s new chairman last month.

At least two Huarong units in Hong Kong are seeking to reduce staff costs by cutting some employees’ pay by between 20 percent and 65 percent and not paying bonuses, said two people.

And many mainland employees have been asked to take an 18 to 20 percent pay hit and what was a monthly bonus will become a quarterly one, said two other people with knowledge of the issue.

In June, Huarong said it would refocus on its core bad-debt business in a shift after years of overseas acquisitions ranging from a Hong Kong broker to a Chicago hotel.

Divestments have already begun. In May, Chinese firm Northeast Pharmaceutical Group 000597.SZ said that Huarong planned to unload a stake of up to 6 percent in the firm within six months.

Earlier this month, Chinese media reported that Huarong had sold a 36.2 per cent stake in a unit of CEFC China Energy which it had bought only in March.