Caixin
Jul 26, 2017 02:31 AM
PROPERTY

Dalian Wanda Accelerates Capital Recovery Amid Leverage Concerns

(Beijing) — Dalian Wanda Group, the Chinese developer that recently announced a $9.4 billion sale of assets, is stepping up capital recovery efforts as it switches its business focus to less-asset-intensive activities.

Wanda this year has reduced the registered capital of 80 subsidiary companies operating Wanda Plaza projects, commercial complexes of shopping malls and office buildings, according to business registration documents. Together with capital reductions at four other subsidiaries in 2015, Wanda has withdrawn more than 40 billion yuan ($5.9 billion) from the projects, documents viewed by Caixin showed.

A source close to Wanda said it is common for developers of commercial complexes to reduce the registered capital of projects after construction is complete because daily operation of malls and offices requires less capital.

But 75 of the 80 changes in registered capital this year took place in the past two months, indicating that Wanda has accelerated the pace of capital recovery. The company hasn’t replied to Caixin’s request on the matter.

Last week, Wanda agreed to sell 13 theme parks and 77 hotels to rival developers Sunac China Holdings and Guangzhou R&F Properties for a combined 63.75 billion yuan. The asset sale came as Chinese regulators step up oversight of domestic companies’ aggressive overseas investments and excess borrowing as part of efforts to reduce financial leverage and contain systemic risks.

In June, Wanda and several other companies were hit by a sell-off in bond and stock markets on speculation that banks might tighten credit controls. That followed an order by China’s banking regulator for lenders to assess their credit-risk exposure to companies active in overseas acquisitions.

Wanda is one of China’s major overseas dealmakers, spending around $20 billion on foreign assets over the past five years, including film producer Legendary, theater chains AMC Entertainment Holdings, Odeon & UCI Cinemas, and a U.K. luxury yacht maker.

In an email to Caixin last week, Wanda’s billionaire Chairman Wang Jianlin said the company will “actively respond to the state’s call and decided to put its main investments within China.

Wang said the sale of theme parks and hotels unloads assets with narrower profitability and greater capital pressure and leaves Wanda with higher-profit core assets. Sources close to the company said the 203 Wanda Plazas across the country are the main element of the company’s remaining core assets.

Business documents also indicated that Wanda has sold stakes in at least eight Wanda Plazas to financial institutions, including CITIC Trust and Minsheng Trust.

Wanda’s asset sales are part of a strategic move to emphasize asset-light businesses, initiated by Wang in 2015. Wang said in January that Wanda would switch its business focus to brand development and generating income from services by managing hotels or theme parks for third-party owners.

Under the asset-light strategy, Wanda can help property owners develop, build and operate commercial and cultural projects. It also offers the use of its name. Wanda will charge for its services and collect licensing fees for the use of its brand, according to Wang.

Wang forecast that Wanda would withdraw from residential real estate development projects and fully transition to an asset-light business model by 2020.

Public documents showed that in the fourth quarter last year, Wanda signed contracts with CITIC Trust, Minsheng Trust, R&F Properties and other companies to jointly develop 90 Wanda Plazas, involving total investments of 105 billion yuan. Most of the planned projects are structured to follow the asset-light strategy, where Wanda will supply management and services.

The first paragraph of this story was changed to reflect that Wanda has announced — not completed — a $9.4 billion sale of assets.

Contact reporter Han Wei (weihan@caixin.com)

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