Club Med spinoff could be no day at the beach

Banyan Tree Holdings

24/09/2018 03:43

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
    By Sharon Lam
    HONG KONG, Sept 24 (Reuters Breakingviews) - Fosun
International  0656.HK  is ready for a Club Med getaway. The $14
billion Chinese conglomerate wants to spin off its Fosun Tourism
Group that houses the renowned resorts once backed by French
financier Edmond de Rothschild. The provisional itinerary,
however, suggests a rather sunny pitch about Chinese travellers.
    Three years ago, Fosun won a prolonged and painstaking
battle against Italian tycoon Andrea Bonomi for the 68-year-old
company, whose all-inclusive vacation spots stretch from Cancun,
Mexico, to Sanya on the South China Sea. It paid $1.1 billion
for the group. Fosun is now angling to raise between $500 and
$700 million, Reuters reported. Floating 25 percent of the unit,
as Fosun said it might, to fund expansion and pay down debt,
would translate into a valuation of up to $2.8 billion.
    Revenue at the division grew 9 percent in 2017, and net
losses have been shrinking quickly. Its EBITDA - adjusted for
acquisition costs, share-based payments and other curiously
undisclosed items – also has been on the rise. Generously assume
that measure of profit grows at the same 37 percent rate as it
did last year – even though it slowed considerably in the first
six months of 2018 – and Fosun Tourism would generate some $185
million.
        A basket of eight travel-related enterprises – including
Hilton Worldwide  HLT.N , resort operator Banyan Tree  BANY.SI 
and cruise operator Carnival  CCL.N  – trade on average at about
12 times their expected EBITDA. Apply that multiple, back out
estimated net debt of $575 million, and Fosun Tourism would be
worth close to $1.7 billion. 
    That implies that Fosun reckons its tourism business
deserves a premium valuation. Since it bought Club Med, the
company says customers from the People’s Republic have increased
tenfold. Residents of the country’s so-called lower-tier cities
are travelling more, according to Morgan Stanley analysts. And a
Fosun International executive told Reuters in May that the
company aims to make Sanya a getaway for China’s growing middle
class. Of course, its rivals in the region do, too.
    Club Med may have an edge attracting vacationers from the
mainland, its second largest market after France. Even so, this
stock sale could be no day at the beach. 
    On Twitter https://twitter.com/sharonlamhk
        
    CONTEXT NEWS
    - Fosun International on Sept. 3 submitted a draft
prospectus detailing plans to spin off Fosun Tourism Group,
which includes Club Med resorts, the Atlantis Sanya resort in
Hainan and a joint venture with Thomas Cook. The company aims to
raise between $500 million and $700 million in the flotation,
unnamed sources told Reuters.
    - The company bought Club Med in March 2015 for 939 million
euros ($1.1 billion) after a two-year bidding battle. Fosun said
funds raised from the listing will be used to expand its
existing business, fund potential acquisitions and repay debt. 
    - Fosun Tourism lost 135 million yuan in the first half of
2018, less than the 189 million yuan it did in the same period a
year earlier. 
    - JPMorgan, CLSA and Citigroup are joint sponsors of the
listing. 
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    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
China's Fosun files for Club Med IPO in Hong Kong, seeks up to
$700 mln – sources     urn:newsml:reuters.com:*:nL8N1VQ07C
BREAKINGVIEWS- China’s Fosun gets in bed with its boss   
 urn:newsml:reuters.com:*:nL4N1U136E
BREAKINGVIEWS- Fosun risks getting knickers in a twist in Italy 
   urn:newsml:reuters.com:*:nL4N1OK19I
Fosun filing    http://www.hkexnews.hk/APP/SEHK/2018/2018090202/Documents/SEHK201809030041.pdf
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Jeffrey Goldfarb and Katrina Hamlin)
 ((sharon.lam@thomsonreuters.com; Reuters Messaging:
sharon.lam.thomsonreuters.com@reuters.net))