Jul 19, 2017
Dalian Wanda, in Switch, Sells Assts to 2 Chinese Companies: DealBook | NYT - July 19, 2017
Sui-Lee Wee and Zhang Tiantian
BEIJING — Dalian Wanda Group, the Chinese conglomerate, tore up a $9.3 billion agreement to sell a portfolio of hotels and theme parks, unexpectedly reaching new deals on the properties that highlighted uncertainty over the financial health of the country’s biggest companies.
Wanda had reached an overall agreement with the property firm Sunac China Holdings last week, but Wanda announced at a signing ceremony on Wednesday that it was backtracking and would instead sell just the theme parks to Sunac. The hotels will instead be sold to R&F Properties, based in the southern Chinese city of Guangzhou.
The hasty reorganization of the deals has raised concern about the due diligence conducted by many of China’s first-generation dealmakers as they seek to become bigger players domestically and around the world. It is also further evidence that Chinese companies have been under greater official pressure to reduce their piles of loans, because the financial authorities have been alarmed that debt-fueled acquisitions by conglomerates could put the broader Chinese economy at risk.
“I have not heard of such a dramatic turnabout,” said Victor Shih, an associate professor at the University of California, San Diego, who specializes in the politics of Chinese banking policies. “If it turns out to be government pressure, it would be typical of what we have been seeing — the government becoming more interventionist in the financial markets,” he said.
The signing was dominated by the announcement that Sunac would pay $6.5 billion for a 91 percent stake in Wanda’s 13 theme parks across China, while R&F Properties would buy 77 hotels from Wanda for $3 billion. In a sign of the wildly fluctuating valuations of assets, however, Wanda had said last week that it was selling Sunac only 76 hotels, but that they were worth $5 billion.
The event itself began in disarray, with sheepish Wanda employees initially telling journalists the briefing would be delayed for about an hour, hurriedly ushering the news media out of a hotel ballroom.
The Chinese news media later posted photographs showing that the logo of R&F Properties had been removed from the sign announcing the deal. A Chinese journalist described hearing a glass break, while other news media reported seeing people angrily storming out of a room.
Wang Jianlin, Wanda’s chairman, acknowledged the delay, but blamed a slow printer and said reports of a “quarrel” were inaccurate. “In fact, we were talking and laughing,” he said.
The revision of the deal came in the wake of volatile stock movements for both Wanda and Sunac.
Both companies have seen their shares slump in recent days over questions about their debt levels and corporate strategies. The ratings agency Fitch cut Sunac’s credit rating, while Standard & Poor’s put Wanda on negative credit watch.
Stocks and bonds linked to Wanda, in particular, took a hit on Monday after a mysterious document circulated on Chinese social media, apparently warning state banks against funding the company’s projects overseas.
“Everyone is concerned about Wanda Commercial’s debt problems,” Mr. Wang said. “The vast majority are really concerned, but very few people are really just spreading rumors. They only want to make chaos.”
He cited a Chinese idiom that describes how some people “harm others to benefit themselves,” before expressing confidence in his firm’s finances. Mr. Wang said Wanda had about $25.2 billion in cash, excluding revenue from its theme parks.
“Wanda Commercial has decided to clear a large portion of its bank loans,” Mr. Wang said.
Last week’s deal with Sunac prompted a slew of reports questioning the property developer’s ability to pay down its debt, especially after it said it would procure a loan from Wanda for about $4.4 billion — almost half the value of the deal. The firm is also in the spotlight for trying to rescue the strapped technology firm LeEco.
The new agreement, however, “offers Sunac better liquidity than the previous transaction plan, and reduces our debt level,” said Sun Hongbin, Sunac’s chairman. The firms said Sunac did not need a loan from Wanda to complete the revised deal.
On Tuesday, Mr. Sun told local news media that China’s commercial banks were reviewing the credit risks facing his firm after last week’s announcement.
Chinese officials have voiced worries in recent months over rising debt levels they fear could destabilize the world’s second-largest economy and have stressed stability in the financial sector. A senior Chinese banking official, Liu Zhiqing, warned recently of the financial risks stemming from some of the country’s biggest companies.