Banking & Finance

Wanda’s unit is in talks with banks as junk credit rating triggers early payment clause

PUBLISHED : Tuesday, 17 October, 2017, 5:45pm
UPDATED : Tuesday, 17 October, 2017, 5:45pm

A unit of Dalian Wanda Group Co. is negotiating with lenders about rescheduling some debt after its credit ratings were cut to junk, triggering a clause requiring early payment of some offshore loans, according to people familiar with the matter.

Covenants requiring mandatory prepayments at Wanda Commercial Properties were triggered on loans totalling more than $1 billion, according to people, who aren’t authorised to speak publicly and asked not to be identified. The specific borrowings, according to the people, are:

  • US$400 million three-year loan due June 2019
  • US$487.5 million of borrowings due December 2019
  • US$500 million three-year loan due May 2018

Moody’s Investors Service and S&P Global Ratings late last month downgraded the credit ratings of the company’s largest shareholder, Dalian Wanda Commercial Properties Co., to below investment grade for reasons ranging from weakened liquidity to an “abrupt change” in its strategy. Fitch Ratings, which rates the property developer its second-lowest investment grade, has said it may cut the rating to junk, citing concerns about liquidity. Wanda declined to comment.

Read: Are the lights finally out for China’s biggest overseas acquirers?

The company has applied to China’s State Administration of Foreign Exchange for approval to remit funds offshore from cash held in the mainland, said the people. Wanda had sizeable onshore cash of 137 billion yuan (US$21 billion) at end of the first half, according to Fitch.

Dalian Wanda “could get a waiver and/or make a repayment on the loans given” cash onshore, JPMorgan Chase said in a credit research note dated October 17. “We also do not think SAFE would bar the company from remitting funds offshore for meeting debt obligations.”

Earlier this year, Wanda sold most of its theme park and hotel assets to Guangzhou R&F Properties Co. and Sunac China Holdings for more than US$9 billion amid mounting government scrutiny of Chinese borrowers.

“We believe that investors are more than well compensated for taking some headline risk,” JPMorgan said in the note, reaffirming its overweight recommendation on Wanda dollar bonds maturing in 2018 and 2024. “The bond prices should remain volatile in the near term.”