China Asks Banks to Assess Credit Risks Linked to Firms Active in Overseas Deals

(Beijing) — China’s banking regulator has recently asked lenders to assess their credit-risk exposure to companies active in overseas acquisitions, sources close to the regulator told Caixin, as the country continues to curb a shopping spree that led to a record capital exodus last year.

The China Banking Regulatory Commission said the risk assessment includes Anbang Insurance Group Co., HNA Group, Fosun Group, Wanda Group, and the unit of Sino-Europe Sports Investment Management Changxing Co. that recently acquired Italy’s AC Milan soccer team, the sources said.

The check aims to uncover potential credit-risk links to those firms and to weed out potential systemic risks related to overseas acquisitions, the sources added.

Following the assessments, a few banks had cut down their holdings of bonds issued by some of these companies and sold in the open market earlier this week, the sources added. Bond and share prices of some of these companies, such as Wanda and Fosun, were substantially lower as of Thursday.

Chinese companies have for years been actively snapping up assets overseas, including soccer teams and Hollywood filmmakers. But continued capital flight has added pressure on the Chinese currency, which is already struggling with a slowing economy, while creating new pressure on the nation’s already overleveraged financial system.

Regulators had vowed to curb “irrational” deals, and have followed up by scrutinizing acquisitions outside the corporate’s core businesses. In 2016, China terminated more than $70 billion worth of overseas deals, up from $10 billion canceled in 2015. But China’s direct investment in the U.S. and Europe still was a record $94.2 billion last year.

Among the companies targeted in this risk assessment, Wanda and Fosun have seen the biggest decline in the price of their bonds and equities.

A five-year yuan bond issued by one of Wanda’s property units traded on the Shanghai Stock Exchange dropped as much as 2% on Thursday. Shares of one of its listed units, Wanda Film Holding Co. Ltd., fell more than 9% before their trading was suspended on the Shenzhen Stock Exchange.

The respective prices of two separate dollar bonds issued by Fosun International, the Hong Kong-listed unit of Fosun Group, also registered big losses on Thursday. Fosun International shares fell as much as 9.6% in the afternoon session.

Wanda said in a statement Thursday that “malicious” rumors about its bonds were untrue.

“Malicious speculation has been spreading online today that banks, including China Construction Bank, had ordered the sale of their Wanda-issued bonds. Based on our inquiries and understanding, China Construction Bank has never issued such orders. We believe the speculation online is a rumor,” the statement said.

Fosun wasn’t immediately available for comment.

Fosun International Ltd., a unit of Fosun Group, has been snapping up more than $15 billion overseas assets since 2010. Wanda’s film unit acquired Hollywood filmmaker Legendary Entertainment for $3.5 billion last year and AMC movie theaters in 2012. However, Wanda’s proposed $1 billion purchase of Dick Clark Productions, which is behind the Golden Globes and the Billboard Music Awards, was vetoed by the Chinese regulator.

Contact Reporter Leng Cheng (chengleng@caixin.com)