Caixin
Jul 21, 2017 05:06 AM
M&A

R&F Explains Its Rush Into $2.9 Billion Wanda Hotel Deal

Dalian Wanda Chairman Wang Jianlin (left), Sunac Chairman Sun Hongbin (center) and R&F Properties Chairman Li Silian toast the deal's signing ceremony in Beijing on Wednesday. Photo: Yang Yifan/Caixin
Dalian Wanda Chairman Wang Jianlin (left), Sunac Chairman Sun Hongbin (center) and R&F Properties Chairman Li Silian toast the deal's signing ceremony in Beijing on Wednesday. Photo: Yang Yifan/Caixin

(Beijing) — Buying Dalian Wanda Group’s hotel assets will improve R&F Properties’ asset quality and make it one of the largest hotel operators in China, according to Hu Jie, board secretary of the Guangzhou-based developer.

Hu discussed the company’s sudden entry into a highly-watched transaction between Wanda and Sunac China Holdings Ltd. during a conference call Thursday with analysts. R&F only learned of Wanda’s plan to sell the hotels “by chance” last weekend and made the purchase decision over the next three to four days, Hu said.

Under a hastily arranged agreement, R&F will acquire 77 hotels from Wanda for 19.9 billion yuan ($2.9 billion) while Tianjin-based Sunac will buy Wanda’s 13 theme parks for 43.84 billion yuan. Last week, Wanda abruptly announced a plan to sell the theme parks plus 76 hotels to Sunac for 63.17 billion yuan ($9.4 billion). 

The revised deal was revealed Wednesday in Beijing. Wanda staffers were seen hurriedly preparing documents just before the signing ceremony. The event was delayed as R&F Properties’ name was removed from the publicity backdrop on the stage and then restored, according to participants.

Several sources close to the matter told Caixin that Wanda and R&F didn’t settle all the terms of the deal until the last moment before the press conference.

R&F operates hotels in eight Chinese cities. The purchase of Wanda’s 77 hotels in 71 cities will make R&F one of the largest hotel operators in China, according to R&F.

“The main factor that prompted R&F’s purchase is the low price,” R&F’s Hu said. The net asset value of the 77 hotels on the books totaled 33 billion yuan, meaning a nearly 40% discount for R&F based on the 19.91 billion yuan purchase price, he said. Sunac had agreed to pay 33.6 billion yuan for 76 hotels.

R&F will not assume Wanda hotels’ liabilities, so the purchase will reduce R&F’s debt-to-asset ratio to 75% from 80%, Hu said. Wanda’s financial report showed that the 77 hotels held 5 billion yuan cash in 2016 and reported 800 million yuan in net profits.

“The price is reasonable,” said one source familiar with the companies. Given the massive size of Wanda’s hotel assets, R&F is one of the few buyers that can afford to buy them, the source said.

Wanda’s controversial earlier plan to sell its extensive hotel and tourism portfolio to smaller rival Sunac would have been one of the largest such deals in Chinese corporate history. Wanda is moving to lower its debt following a multi-billion-dollar spending spree over the past five years as part of a plan to transform itself from a real estate company into an entertainment enterprise.

Investors expressed concerns about the size of the originally planned purchase by Sunac. The world’s three major credit ratings agencies all issued negative opinions after announcement of the initial deal, warning of Sunac’s “aggressive expansion.” Sunac’s stock fell sharply.

Investors cheered the new deal as shares of Wanda Hotel Development, R&F Properties and Sunac China rallied on Thursday.

“The new deal structure is more reasonable,” said an analyst who attended the conference call. “It is a good bargain to R&F and will quickly recoup cash for Wanda.”

R&F held about 90 billion yuan of cash by the end of last year and signed 40 billion yuan in sales contracts in the first half of this year, giving the company the financial capacity to make the deal, Hu said.

According to Hu, 54 of the hotels are managed by Wanda’s hotel management subsidiary while the rest are managed by third-party companies. R&F will maintain the current management of the hotels and consider listing the hotel assets in the future, Hu said.

R&F is China’s 20th largest developer in term of sales. In 2016, the company reported 53.7 billion yuan in revenue with net profit of 6.8 billion yuan.

Contact reporter Han Wei (weihan@caixin.com)

You've accessed an article available only to subscribers
VIEW OPTIONS
Share this article
Open WeChat and scan the QR code