Exclusive | Club Med’s owner quells false alarm about Fosun being under Chinese regulators’ debt scrutiny

Reports about China’s regulators asking banks to examine their exposure to Fosun are ‘completely false’, its chief financial officer said
Fosun’s shares fell 4.1 per cent on Tuesday, close to the lowest point since 2013

Fosun Group

Peggy Sito

Published: 8:55am, 14 Sep, 2022

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Fosun Group, the owner of the Club Med resorts and one of China’s biggest private conglomerates, is trying to quell a false alarm about its health after a jittery market wiped billions of dollars off its value on account of a media report.

A Bloomberg report on Tuesday about the company under scrutiny by China’s biggest banks at the order of the industry regulator is “completely false,” said Fosun’s chief financial officer Alex Gong Ping.

“Neither the China Banking and Insurance Regulatory Commission (CBIRC) nor the Shanghai Banking and Insurance Regulatory Commission have asked commercial banks to find out about Fosun’s financial exposure, and those institutions have not received any notice of this,” Gong told the South China Morning Post late Tuesday in a phone interview from Shanghai.

Multiple regulators including the CBIRC and a branch of the State-owned Assets Supervision and Administration Commission (Sasac) recently instructed institutions under their oversight to closely examine their financial exposure to Fosun, Bloomberg reported, citing unnamed sources. The moves may not lead to any action, Bloomberg added.

Guo Guangchang, co-founder and chairman of the Fosun Group, during an interview in Shanghai on November 12, 2018. Photo: Simon Song

The report raised concerns about the financial health of Fosun, once one of China’s most prolific buyers of global assets, with myriad businesses including a controlling stake in Club Med, the French luxury brand Lanvin, to the distributor of BioNTech’s mRNA vaccine to treat Covid-19 in Hong Kong and Macau.

The company was downgraded by Moody’s Investors Service in August over concerns about its liquidity, elevated refinancing pressure and potential contagion risk from weak subsidiaries exposed to the Chinese property market.

Shares of Fosun’s three flagship companies - Fosun International, Fosun Tourism and Fosun Pharmaceutical - fell in Hong Kong and Shanghai, wiping out about HK$4.5 billion (US$577 million) in value on Tuesday.

Fosun Group’s senior executives during an event in Hong Kong on August 29, 2018. Guo Guangchang the co-founder and chairman was the third from the left, while Alex Gong Ping, then executive director, was the first on the right. Photo: Bloomberg.

The Sasac survey is “routine information collection work by the Beijing Sasac system, without any specificity,” Gong said, citing his inquiry with the regulator in the Chinese capital.

“We have access to various funding channels and stable sources of funding,” he said, citing the company’s financial health and resilience to challenges.

This was not the first time that Fosun had to deal with a false alarm. Shares of Shanghai Fosun Pharmaceutical Group unit plunged 8.8 per cent in a single day in July 2017 when the group’s chairman Guo was in Xi’an for a conference.

Rumours began circulating that Guo, who had cofounded the group in 1992, had been taken away for questioning, boding ill for one of China’s largest private conglomerates. The rumours were quashed when Guo returned to Shanghai the same day, and held an online meeting, attended by nearly 1,000 analysts, to say that all was well.

Fosun’s Guo quashes rumour, says business is steady and robust

Guo was not available for an interview this time. He wrote that he was undergoing quarantine in Shanghai after returning from several months overseas, where he visited nearly 40 cities in more than 20 countries, according to a post on the Weibo microblog service.

Market rumors are not just aimed at Fosun, but Chinese enterprises in general, Gong said. “It reflects investors’ panic about the capital market amid the uncertain external environment,” he said.

Fosun International’s 2021 profit rose 26 per cent to US$1.6 billion. The company, which owns the French fashion house Lanvin, had 651 billion yuan (US$94 billion) in total liabilities, with cash and cash equivalents of 117.7 billion yuan at the end of June, according to Bloomberg’s data.

“Our total debts were 651 billion yuan, but many of them are under our listed or unlisted units such as Shanghai Fosun Pharmaceuticals. Our own debts are much less than that amount,” said Gong, without disclosing the figure.

After the signing of a strategic cooperation agreement with state-owned Industrial and Commercial Bank of China (ICBC) on July 19, the company renewed a strategic cooperation agreement with HSBC China on August 26, Gong said.

A September 13 post by Fosun Group’s co-founder Guo Guangchang on China’s Weibo microblog service. Photo: Weibo

Still, Fosun had been selling some noncore assets to streamline its investment portfolio to allay investors’ concerns about its liabilities.

Fosun reached a deal to list luxury fashion house Lanvin Group in New York in March via a special purpose acquisition vehicle (Spac), sold US insurance group AmeriTrust to AF Group in April and agreed to sell its entire stake in Tsingtao Brewery Company for US$527 million in May.

Fosun International also sold 28 million Hong Kong-traded shares of Fosun Tourism to independent third parties after trading hours on September 5. It still holds about four-fifths of Fosun Tourism.

Moody’s downgraded Fosun International – the major holding company of the group – by one notch to B1 last month.

“The downgrade reflects Fosun’s weak liquidity profile, elevated refinancing pressure due to the challenging onshore and offshore funding environment, and the execution risks related to its asset divestment plan amid slower economic growth and capital market volatility,” said Lina Choi, a Moody’s senior vice-president.