Mergers & Acquisitions

China property

Wanda’s US$9.3b sale becomes a threesome under the spotlight as it ropes in R&F with Sunac

PUBLISHED : Wednesday, 19 July, 2017, 4:15pm
UPDATED : Thursday, 20 July, 2017, 1:12pm

Chinese magnate Wang Jianlin has roped in a business partner from Guangdong province to take 77 hotel assets off his hands, in a surprising 11th hour twist to the country’s largest real estate sale, as close regulatory scrutiny on the original buyer compelled initial plans to be scuttled.

Wanda Group, founded in 1988 by Wang, will sell the hotels for 19.9 billion yuan (US$3 billion) to Guangzhou R&F Properties, one of the biggest developers in Guangdong province. Sunac China, which has also been under the regulator’s spotlight, will pay 43.8 billion yuan to buy 13 tourism-related projects including theme parks from Wanda, scaling back a 63.7 billion yuan acquisition announced nine days earlier.

“It is a win-win-win for all our three parties and will largely reduce Wanda’s debt,” Wang said at a hastily assembled press conference at the Sofitel Hotel in his flagship Wanda plaza in Beijing. “It’s also a big step forward in our asset-light transformation.”

The signing ceremony and press conference was an exercise in spontaneity. The backdrop at the signing ceremony was changed from a tripartite event into just Wanda and Sunac, and then changed back to featuring the three companies, while the entire proceeding was delayed for more than an hour. Officials at the event did not explain the hasty changes.

Wang Jianlin sells most of Wanda hotel and tourism portfolio to rival magnate for US$9.3 billion

Wanda and Sunac are among a handful of asset buyers in China that have been placed under the spotlight for their profligate deal making and acquisitions around the world, with the bank regulator last month instructing lenders to watch for their loan exposures.

The China Banking Regulatory Commission on June 20 verbally instructed large banks to cut off funding for six of Wanda’s overseas purchases for its violations government rules, the South China Morning Post reported on Monday.

Sunac, which has spent an estimated 100 billion yuan buying assets, has also caught the regulator’s attention because of its huge investment in Wanda, the company said on Tuesday.

Wanda is the biggest winner in the revised deal, as it now stands to receive 60 billion yuan in cash, double the amount it was slated for in the earlier plan as it will not need to provide any loans to any of the buyers, said DBS Vickers’ property analyst Danielle Wang.

“The turning point in the deal is R&F willing to buy Wanda’s hotels,” she said.

An adjustment in the acquisition strategy “would release more liquidity for Sunac and help us reduce debt,” Sunac’s founder and chairman Sun Hongbin said, in explaining why his company dropped the plan to buy Wanda’s hotels.

Read: Statement by Wang Jianlin on Wanda’s Debt Paying Ability and Company Strategy

Wang’s unit, Wanda Commercial Properties, has 100 billion yuan of cash on hand, with about 200 billion yuan in borrowings and outstanding bonds, he said. That adds to about 68 billion yuan of proceeds he has from selling hotels and tourism assets, which gives the company more than 170 billion yuan of cash in hand, Wang said.

“By the end of this year, Wanda Commercial will own 33 million square meters of commercial properties, with rent that will surpass 33 billion yuan in 2018,” the magnate said. “In terms of rent, Wanda Commercial will enjoy an average annual growth rate of approximately 20 per cent over the coming five years. Is Wanda Commercial running a good business? You can make your own judgement.”

In another twist to earlier plans, Wanda will no longer provide a loan to Sunac for buying its theme parks, Sun said. His company has already paid Wanda a deposit of 15 billion yuan, and will complete the remainder of the payment in 90 days, he said.

Sunac has 90 billion yuan of cash as at the end of June, Sun said, adding that the company will be closely watching its debt level and cash flow to avert risks.

Meanwhile, R&F has paid 2 billion yuan as a deposit to Wanda and agreed to pay the rest of the money by the end of January 2018.

R&F, co-chaired by Zhang Li and Li Sze Lim, also owns dozens of luxury hotels in China. The company has already been building shopping complexes with Wanda since the end of 2016.