Having dumped US$25 billion in assets, Wanda still about halfway through cutting its debt burden
- Company has agreed to invest about US$8 billion in ‘red tourism’ projects to weather the storm
- Owner Wang Jianlin’s net worth has plunged by about 37 per cent to US$20.2 billion
Dalian Wanda Group has gone through a severe slimming exercise ever since it was placed on a watch list by Chinese regulators in April 2017 – for highly leveraged acquisitions around the world – as part of a government drive to crack down on debt and prevent private-sector borrowings from hurting China’s financial system.
Other companies on the watch list include Anbang Group, HNA Group, Fosun Group and CEFC China.
Wanda, the flagship of Wang Jianlin, China’s wealthiest man, is not halfway through selling assets to repay debt, based on an analysis of his assets and liabilities. As of the end of March, Wanda’s balance sheet had shrunk by more than 170 billion yuan (US$25 billion) from end 2016, or more than 20 per cent.
It still faces 182.2 billion yuan in debt obligations, including bonds and loans, an equivalent to 30 per cent of its current total assets.
“Over the past two years, Wanda has furiously shrunk its balance sheet by more than 20 per cent. And its unwinding will continue, as it still faces more than 180 billion yuan in short and medium-term debt obligations,” said Brock Silvers, managing director at Kaiyuan Capital in Shanghai.
But the days ahead may be more difficult. “Much of the easier monetisation is over, as the Chinese economy has slowed, and global deal makers may be increasingly hoping to benefit from Wanda’s predicament,” he said.
“In 2019, Wanda may face increasingly difficult decisions as it continues to divest and reorganise. ”
Beijing has suddenly realised it “sleepily subsidised massive M&A [mergers &acquisitions]” for these Chinese tycoons, who have taken advantage of cheap credit by state lenders to create sprawling global empires in the past few years, said Silvers.
“These deals looked unlikely to generate expected returns, and were thus exposing Beijing to deep economic risk. The [financial] system had been stretched to the limit, and was itself now at real risk,” he said.
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In June 2017, Chinese regulators told banks to cut funding for some of Wanda’s overseas deals, which they said were at odds with Beijing’s capital outflow restrictions.
Since then, Wanda has rapidly got rid of many overseas and domestic assets in about 20 transactions, some at great loss.
This intense selling thrust it into the public eye in July 2017, when Wang sold 13 cultural and tourism projects and 77 hotels for 43.84 billion yuan and 19.9 billion yuan to Sunac China and R&F Properties, respectively.
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Sunac said the fair value of the 13 projects it bought exceeded its payment by more than 23 billion yuan. R&F bought the hotels at a big discount too, at about 60 per cent of an earlier offer by Sunac.
In January 2018, Wanda sold a London luxury development project for £59 million (US$81.5 million) to R&F. In 2013, it said it planned to invest about £70 million in the project.
In addition, it shed a partial stake in Wanda Film to Alibaba Group Holding and Beijing Cultural Investment for 7.8 billion yuan, a partial stake in Wanda Commercial Properties to Tencent Holdings and Suning for 34 billion yuan, a partial stake in AMC Entertainment to Silver Lake for US$420 million and a stake in Aeon Life Insurance to Greentown China for 2.7 billion yuan.
Wanda also privatised its Hong Kong-listed unit, Dalian Wanda Commercial Properties, less than two years after its trading debut, with the hope of relisting in Shanghai at a better valuation. This has yet to happen, as over the past two-and-a-half years, property companies have found it difficult to get approvals for listings in mainland China.
And in February this year, regulators suspended a review of Dalian Commercial Properties’ IPO application without disclosing any reasons.
To weather the storm, Wanda has also pledged to make massive investments in so-called red tourism projects, promoting visits to historical sites and places of significance to China’s Communist revolution.
The company signed three separate deals between October and December last year with local governments and said it planned to invest a combined 52 billion yuan in cultural and tourism projects in Zunyi, in Guizhou province, Lanzhou, in Gansu Province, and Yanan, in Shaanxi province.
Meanwhile, the unwinding of its assets continues.
In February, it sold all 37 Wanda Department Stores to Suning.com for an undisclosed amount. Suning.com said it would reveal the figure in its 2019 financial report this year.
Wanda currently owns only one overseas property project, the Vista Tower in Chicago. It still holds substantial stakes in AMC and Legendary Pictures and controls British yacht maker Sunseeker International. In sports, it owns Swiss sports marketing firm Infront Sports & Media and World Triathlon Corporation, organiser and promoter of the Ironman races.
Wang’s net worth has plunged by about 37 per cent since a peak in 2017 of US$31.9 billion to US$20.2 billion now.
“The company faces real risks, but Wang Jianlin seems committed to deleveraging,” said Silvers.
