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Dalian Wanda Commercial's bang could end with whimper


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Dalian Wanda Commercial's bang could end with whimper

Just15 months after its rock star entry onto the Hong Kong listed market,Dalian Wanda CommercialProperties Co. Ltd. is looking at a delisting through privatization.

In alate-night March 30 filing, Wanda said parent company Dalian Wanda Group maybuy out theoutstanding shares of the property unit in Hong Kong for around HK$48 per sharein cash, or a price tag of roughly HK$31.32 billion.

Theshopping mall giant raised US$3.7 billion when it in Hong Kong in December 2014,setting records for the biggest float in Hong Kong that year and as thelargest-ever IPO by a real estate company globally.

Adisappointing and undervalued share price could be the biggest reason for theprivatization, according to UOB Kay Hian analyst David Yang.

Wanda'sshares rose to a height of HK$76.80 per share on June 5, 2015, but have sincetumbled, hitting a low of HK$31.55 per share on Feb. 25. The stock is currentlytrading at HK$45.95 per share as of 2:30 p.m. Hong Kong time March 31.

"Wandacame to list in Hong Kong to broaden its financing channels, but it seems thatthe stock performance has not been satisfactory for Wang and did not meet hisexpectations," Yang said in an interview.

Yangalso noted that the company may not need to rely on the equity and financingflexibility that the Hong Kong listing provides.

Thecompany relies on debt, mostly in the form of domestic bank loans, as its majorfinancing method, according to Yang. As at Dec. 31, 2015, its total debts stood at 186.65billion Chinese yuan, while overseas borrowings only accounted for 5.77% of theamount. In fact, the company is speeding up its onshore financing efforts asthe yuan continues to depreciate. For example, it revealed the to raise 12 billion yuan througha notes offering in China in early March.

Inaddition, the company's shift to an asset-light strategy, which brings externalinvestors in to fund the construction of its sprawling shopping mall portfolio,requires less capital expenditure going forward, Yang said. "Compared toprevious years when Wanda was aggressively expanding and building new projects,the future of the company will see it focused on managing malls. This shiftwill change the capital-intensive nature of Wanda, which is transiting to amanager from a developer," he said.

ThoughWanda may delist from Hong Kong, it is still positioned to access the equitymarkets on the mainland with its 12 billion yuan A-share listing .

Wandasubmitted the listing plan at the end of 2015, though it is awaiting Chineseregulatory approval amid the current weak domestic equity market. But once theonshore listing is completed, Wanda should be able benefit from higher equitypremiums at the A-share market, where the valuations are generally higher thanthe H-share market, according to Yan Yuejin, a researcher at China R&DInstitute.

Themainland exchanges in Shanghai and Shenzhen carry the stocks known as A sharesand B shares, and generally attract more speculative retail investors, while Hshares refer to those from companies incorporated in mainland China and listedon the Hong Kong exchange and are more the purview of institutional investors.

"Itwon't be too surprising if Wanda's ultimate goal of the privatization plan isto return to the A-share market," he said in an interview.

However,since the privatization plans are still in the preliminary phase, there areuncertainties around whether it will go through.

"Hopefully,Wanda can come up with a good proposal if it really decides to go ahead withthe H-share privatization," said Yang.

Asthe company indicated an offering price of no less than HK$48 per share, thereseems to be a lot of room for price negotiation. "Eight of the 10 cornerstoneinvestors are still staying with Wanda. So the company is likely to compensatefor the time costs of their investments with some attractive pricing," headded.

Someof Wanda's major H shareholders include China Life Insurance Asset Management Co. Ltd.,BlackRock Inc. andVanguard Group Inc.,according to SNL data.