Wanda was obliged to take its mall-management arm public by the end of the year, or fund a massive share buyback.
Photo by Kuang Da
By PENG Fei, YANG Bingke
Dalian Wanda Group (Wanda) has taken another step to saving itself, reaching an agreement with investors, and dodging a bill for 30 billion yuan (US$4.2 billion).
As a condition of previous borrowing, Wanda was obliged to take its mall management subsidiary public by the end of the year or find the cash for a massive share buyback. After months of negotiations, squeezed by creditors, and selling core assets to settle debts, Wanda has secured a momentary respite.
Out of the 30-billion-yuan shadow for now, a consortium led by Hong Kong’s private equity firm PAG will reinvest an undisclosed sum when Wanda repays their initial investments.
Wanda’s stake in Wanda Commercial Management will be reduced to 40 percent from the previous 78 percent. The group of investors will control the remaining 60 percent.
Valued today at about 100 billion yuan, down from 180 billion in 2021 when PAG entered the initial agreement, Wanda Commercial was to be taken public by the end of this year. If not, Wanda must pay back 30 billion yuan.
The IPO was beset by setbacks and the resolution comes as no surprise, except to the extent that Wanda has been forced to give up its majority shareholding.
Wanda founder, 69-year-old WANG Jianlin, approached investors in October when it became evident that the IPO was not going to happen. And that Wanda didn’t have a spare 30 billion yuan.
Wang proposed to give investors an additional 20 percent share, but investors, already spooked by dealings with indebted developers, wanted more.
Among the investors, PAG Chairman SHAN Weijian, a prominent figure in Asia’s private equity circle, was adamant that Wanda should pay up as much as possible, as soon as possible. Other members of the consortium including Tencent and Alibaba, were more sympathetic to Wanda until Wang caved in.
This is not the first time Wanda has taken drastic measures to survive, and won’t be the last. In 2017, when borrowing for mergers and acquisitions abroad tightened, Wanda sold 76 hotels and 13 theme parks to raise 64 billion yuan to pay off its debt.
Two factors helped seal the deal this time. The first is that preserving Wanda’s liquidity was in all parties' best interest. Coughing up 30 billion yuan would likely trigger another sell-off and send asset values on a downward spiral.
The second is the robust fundamentals of Zhuhai Wanda Commercial Management. It is by far the largest mall operator in China, with rent received and total revenue more than double that of its closest competitor. The company is on friendly terms with many local governments and is poised to expand. An asset-light model adopted after the 2017 crisis has partially insulated it from the market shocks that have affected peers who directly own their properties.
However, Wanda has once again sold assets to meet obligations.
Both Wanda Cinemas and, more remarkably, Wanda Plaza (“the most crucial and indispensable component of the conglomerate”) have been frittered away. At least five malls have been sold. A payment subsidiary and a sports media subsidiary are also up for grabs.
Wanda has somehow made 18 billion yuan in bond payments this year, and has bout another 15 billion cash in hand. Bonds of about 4.8 billion yuan domestically and US$600 million offshore fall due in 2024, with another 29 billion yuan worth of private debt on the calendar.
The company has slimmed down significantly from six years ago. Valued then at over 600 billion yuan, Wanda owned malls, cinemas, film production companies and all kinds of other properties in the US, UK and Australia. The business has since been stripped down to the basics. The property management arm is the most valuable.
Wanda is not big in residential real estate, a conscious decision of Wang Jianlin’s which was widely criticized during China’s housing market boom. It turned out to be a blessing in disguise. The company is not hit as hard as Evergrande or Country Garden. But amid the real estate woes, every unhappy company is unhappy in its own way.
