Sunac seals China knight role with $9bln Wanda buy

Wanda Hotel Development

26/09/2017 01:18

(The authors are Reuters Breakingviews columnists.  The 
opinions expressed are their own.) (Repeats to replace missing 
item in archive: No changes to text.) 
    By Pete Sweeney and Robyn Mak 
    HONG KONG, July 11 (Reuters) - Sunac China  1918.HK  sure is 
helpful these days. Despite a massive debt overhang following a 
spate of aggressive investments, the mainland property developer 
is buying some $9.3 billion worth of hotel and tourism 
properties from entertainment giant Dalian Wanda  0169.HK . The 
seller is under pressure; sources recently told Reuters that 
banks had been ordered to examine loans made to the company. But 
if Sunac shareholders were already wary about its investments, 
this latest purchase, worth roughly 125 percent of its own 
market cap, is unlikely to console. 
    Key details remain scant. Sunac shares were suspended at the 
company's request in Hong Kong on Monday morning. The only 
official public announcement by market close came from the 
seller. In a statement, Wanda said it would sell 91 percent of 
13 tourism projects plus 76 hotels to Sunac. The latter will 
take on the debt for the tourism projects while leaving the 
Wanda brand, project plans, designs and operational management 
intact. 
    The deal might take heat off Wanda. But it will almost 
certainly load more pressure on Sunac. Net debt at the company 
rose to $6.3 billion by the end of December 2016, up 191 percent 
from the previous year, and that was before January, when it 
made a left-field investment of $2.2 billion in LeEco, a group 
dabbling in everything from smartphones to electric cars. 
    Sunac founder Sun Hongbin is known for gutsy plays, and 
until recently his strategy was celebrated by the market. Shares 
had gained more than 180 percent this year before they peaked on 
July 3. But the stock has since lost 12 percent amid mounting 
problems at LeEco, whose own founder recently confessed that 
Sunac's support had failed to solve the company's mounting cash 
problems. 
    Although the Wanda purchase is at least more related to 
Sunac's core property business, the reality is that the buyer 
doesn't have a lot of experience running hotels or developing 
"cultural tourism projects". LeEco and Wanda may appreciate this 
knight in shining armour, but this knight's horse already looks 
tired. 
    On Twitter https://twitter.com/petesweeneypro     
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    CONTEXT NEWS 
    - Chinese conglomerate Dalian Wanda on July 10 said it would 
sell tourism projects and hotels to local property developer 
Sunac China for 63.2 billion yuan ($9.3 billion). 
    - As part of the deal, Wanda will sell 91 percent of 13 
cultural tourism projects to Sunac, including theme parks and 
leisure complexes, as well as 76 hotels.  
    - Wanda added that Sunac will be responsible for all the 
outstanding loans related to the tourism projects. They will 
retain the Wanda brand name, and design of the projects will 
remain unchanged. They will still be operated and managed by 
Wanda. 
    - The deal was announced by Wanda on its own website. Sunac 
shares were suspended in Hong Kong on July 10, pending an 
announcement. The company declined to comment further. 
    - On the same day, Reuters reported that Sunac and Wanda 
will sign an agreement by the end of the month.  
    -  For previous columns by the authors, Reuters customers 
can click on  SWEENEY/  and  MAK/  
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    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
China's Wanda steps back from theme park, hotel drive with $9.3 
bln Sunac deal     urn:newsml:reuters.com:*:nL4N1K11JC 
Wanda announcement (Chinese)     http://www.wanda.cn/2017/2017_0710/36223.html 
BREAKINGVIEWS - LeEco's $2 bln rescue rewards bad habits    
 urn:newsml:reuters.com:*:nL1N1F600W 
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> 
 (Editing by Una Galani, Katrina Hamlin and Bob Cervi) 
 ((pete.sweeney@thomsonreuters.com; Reuters Messaging: 
pete.sweeney.thomsonreuters.com@reuters.net)(robyn.mak@thomsonre 
uters.com; Reuters Messaging: 
robyn.mak.thomsonreuters.com@reuters.net)) 
 
Keywords: WANDA SUNAC CHINA/M&A BREAKINGVIEWS