Just last year, billionaire Wang Jianlin had appeared to cement his reputation as one of the few remaining Chinese property tycoons to sidestep a wave of debt defaults sweeping the industry.
(Bloomberg) — Just last year, billionaire Wang Jianlin had appeared to cement his reputation as one of the few remaining Chinese property tycoons to sidestep a wave of debt defaults sweeping the industry.
The Dalian Wanda Group founder was confident enough in his financial position to offer help to a fellow Chinese mogul who wanted to sell a portfolio of shopping malls for 700 million yuan ($98 million), according to people familiar with the matter. Wang, 68, planned to fold the malls into his commercial management unit in preparation for an initial public offering, the people said, asking not to be named discussing private information.
Now, the IPO is shrouded in doubt and Wang is fighting to save what’s left of the 35-year-old shopping, entertainment and hotel empire he had hoped would become China’s answer to Walt Disney Co.
The People’s Liberation Army veteran has been negotiating with regulators and strategic investors on potential support for his conglomerate while his lieutenants crisscross the country to push for extensions on billions of debt from banks, trust firms and suppliers, people familiar with the matter said.
Wang, whose fortune has dwindled by $40 billion from its peak to $6.6 billion, is demanding weekly updates from his executives on refinancing efforts and operational metrics — compared with monthly before — and has suspended all new initiatives, the people said.
While the conglomerate previously had an open door at some of the nation’s biggest banks, Wanda executives are now reaching out to smaller lenders for new credit lines, the people added. On a group level, the company still has about 40 billion yuan in cash — enough to meet its short-term debts — but would struggle with a potential payment to investors if its Zhuhai Wanda Commercial Management Group Co. unit fails to list this year, the people said.
Wang’s crisis underscores the scale of the troubles engulfing China’s property sector, which was brought to its knees by President Xi Jinping’s deleveraging campaign and years of Covid lockdowns. With hopes of a quick rebound for the industry fading, even players like Wang who once seemed poised to weather the turmoil are racing to shore up confidence among creditors and other counterparties.
“For the last 10 years, the property companies expanded too fast with too much debt,” said Louis Tse, managing director at brokerage firm Wealthy Securities Ltd. “The good old days are gone for good, especially for Chinese property billionaires.”
Wanda didn’t respond to requests for comment. Wang acknowledged some difficulties at his company during an internal meeting in April, reiterating that Wanda can overcome its challenges, people familiar said at the time.
IPO Lapse
Once Asia’s richest person, Wang has been on the defensive ever since China escalated crackdowns on its tycoons during Xi’s reign.
The big state banks started limiting funding to Wanda six years ago, prompting the company — along with HNA Group Co. and Anbang Insurance — to scale back its global ambitions. Wanda, at one time the world’s largest cinema operator, almost completely exited its investment two years ago in US cinema chain AMC Entertainment Holdings Inc., which it had bought in 2012 for $2.6 billion.
Wang has acted quickly before to save his conglomerate. Around five years ago, he managed to save Wanda from bankruptcy by selling his hotels to Guangzhou R&F Properties Co. and tourism and theme-park projects to Sunac China Holdings Ltd. in deals that brought in about 69 billion yuan.
When Covid hit, Wang saw his wealth shrink like his fellow tycoons. He coped by deploying an asset-light strategy to cut debt, retreat from overseas expansions and disposing a stake in Legendary Entertainment, the studio behind “Dune.”
That hasn’t ended his troubles. China’s securities watchdog sent a letter to Wanda’s mall unit in March, inquiring about the delayed share sale of Zhuhai Wanda Commercial Management. The unit manages more than 400 shopping malls.
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Regulators were concerned about the company’s finances as it faces repurchase obligations of about 30 billion yuan in equity from pre-IPO investors, if it fails to list by the end of this year.
By early May, the company’s listing application on the Hong Kong stock exchange had lapsed for a third time, turning Wanda into a source of anxiety among investors.
Its bond prices tanked. Wanda’s bond due in July this year are now trading at 86 cents on the dollar. The shopping mall unit has 6 billion yuan in four onshore bonds that would either mature or face investors’ early redemption request by the end of November.
Wanda has been trying to shore up its liquidity by exploring the sales of as many as 20 shopping malls and its digital payments license, Bloomberg reported in May. It’s also in talks with major Chinese banks on a loan relief plan, people familiar have said.
Critical Juncture
China’s property sector remains fragile despite a 16-point plan of support unveiled by the government in November last year.
Sales in the real estate sector have fizzled following a brief rebound early this year. Distress is spreading from private developers to state-owned ones, and perhaps more worryingly, from smaller cities to top-tier ones, where “secondary markets are suffering from a glut of eager sellers despite plummeting sales,” Nomura analysts led by Lu Ting wrote.
A mountain of developer debt — equal to about 12% of China’s GDP — is at risk of default.
That’s why the government is planning to issue an additional basket of measures to aid the real estate sector, people familiar said this month.
The end of June will be a critical juncture when state-owned lenders typically assess loan risks and rollover requests, the people said. Wanda is in talks with banks including Industrial & Commercial Bank of China Ltd. on a plan that may allow it to extend principal repayments for some onshore borrowings, people familiar have said.
Under the plan, the property giant is seeking to refinance all onshore loans due this year without having to repay the principal, the people added.
Wang is also personally negotiating with large investors, seeking an extension on repayment if the company fails to list its mall unit in time, people familiar said. The investors include the Zhuhai State-owned Assets Supervision and Administration Commission.
Key impediments to the company’s listing include a lack of investor appetite and reservations among regulators at China’s securities watchdog, the people said.
“When and whether Zhuhai Wanda would obtain IPO approval is now more uncertain,” S&P Global Ratings analysts Iris Cheng and Esther Liu said in a June 5 report that downgraded Wanda Commercial to a BB rating. “Dalian Wanda Group’s financing channels could further narrow if no positive feedback is received” on the listing.
The China Securities Regulatory Commission asked Zhuhai Wanda to provide supplementary materials for its overseas listing plan, the government said in a statement on June 2. It asked for documents on internal control and operation, connected transactions, and fund-raising management.
The company can’t list in Hong Kong until it gets a green light from the CSRC.
This month, a Shanghai court froze a 1.98 billion yuan stake that Dalian Wanda held in its shopping mall unit due to financial disputes between the company and its partner in a Changchun project. Wanda said it is seeking to protect its rights through legal action.
All that means that time is ticking for Wang. Meanwhile, the tycoon’s $98 million aid to his friend Wu Po Sum at Central China Real Estate is still in the works. Fewer than 5 projects have been taken over by Wanda, and the rest are under due diligence, the people said.
“The troubled company still faces an untenable future without significant changes to both its business model and balance sheet,” said Brock Silvers, managing director at private equity firm Kaiyuan Capital Ltd. “Investors have no reason to think those changes are imminent.”
–With assistance from Venus Feng, Lorretta Chen, Yuling Yang and Emma Dong.
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