Wanda tycoon pays price for overexpansion

Wanda Hotel Development

13/12/2023 04:08

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own. Refiles to add coding and shortens
headline.)
    By Chan Ka Sing
       HONG KONG, Dec 13 (Reuters Breakingviews) - People work
out what they really want to keep after a garage sale. It seems
Wang Jianlin would rather hang onto Dalian Wanda’s shopping
malls than the unit which manages them. He now needs to prove he
can attract both shoppers and investors to avoid a more painful
rejig at China’s biggest commercial landlord. 
    Wang, once Asia’s richest man, made his preference clear on
Tuesday by giving up control of Zhuhai Wanda Commercial
Management to a group of pre-IPO investors. Wang had promised to
repay them over 30 billion yuan ($4.1 billion) if the subsidiary
did not go public this year.  
    The crunch followed his ill-timed 2016 gamble to take his
commercial property unit in Hong Kong and relist it on a
mainland Chinese exchange at a higher valuation. The next year,
Beijing slammed the brake on offshore investments by several
acquisitive firms including Dalian Wanda. The group has dumped
more than $25 billion worth of assets since 2017. The sales
enabled Wang to recoup cash ahead of the nationwide deleveraging
campaign that has seen most of China’s other property giants
default on their borrowing.  
    Yet the fire-sale has proven inadequate. Last week Wang sold
off the controlling stake in his movie unit. Chinese media also
reported that Dalian Wanda has been in talks to sell a number of
its mega commercial complexes. Zhuhai Wanda manages 494 of these
Wanda Plazas in 227 Chinese cities, of which nearly 300 were
developed by its parent. The group owned 109 Wanda Plazas by the
end of 2014, and Wang had said he wanted the number to grow to
1,000 by 2025. Wang might have scaled back his ambition. Yet
still, compared with building and selling homes, developers of
rental properties usually take longer to recoup their
investment. Dalian Wanda had amassed nearly 300 billion yuan in
total liabilities by the end of 2022, per a prospectus for a
bond offering, of which 67 billion yuan is due in one year. 
    The latest deal reflects how valuations have fallen.
Investors led by private equity firm PAG acquired 21% of Zhuhai
Wanda for 30 billion yuan in 2021 on the promise of an initial
public offering by the end of 2023. It has since tried and
failed to float four times. Now the investors are effectively
swapping their claim for 60% stake in the business.  
    Wang has persuaded others to give him more time too.
Creditors have just agreed to extend a $600 million bond issued
by a separate unit of Dalian Wanda for another year. But unless
China’s property market stages a revival, Wang may soon be
holding another garage sale. 
    
    CONTEXT NEWS
   Dalian Wanda said on Dec. 12 it had reached an agreement with
a group of investors in its mall operating unit, Zhuhai Wanda
Commercial Management. 
    The Chinese property group was due to repay about 30 billion
yuan ($4.1 billion) plus interest to the investors if Zhuhai
Wanda shares were not listed before the end of 2023. 
    Under the new deal the investors, including private equity
investor PAG, will take a 60% stake in Zhuhai Wanda with Dalian
Wanda retaining the rest. 
    Dalian Wanda took its commercial property business private
in 2016, announcing the plan some 15 months after the company
was floated in Hong Kong. It cost over $4 billion at the time to
buy all the outstanding shares.

 (Editing by Una Galani and Thomas Shum)
 ((For previous columns by the author, Reuters customers can
click on  CHAN/  
KaSing.Chan@thomsonreuters.com; Reuters Messaging:
KaSing.Chan.thomsonreuters.com@reuters.net))