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Dalian Wanda sheds properties as government pressures funding

Dalian Wanda Group Co. Ltd. accelerated asset sales in the second half as Chinese government measures to curb outbound investment increased financial pressure on the company. While Wanda has claimed that the asset sales are part of a shift to an "asset-light strategy," analysts said it is likely facing financial stress and must sell properties to pay down loans.

As the Chinese government has sought to reduce financial risk, it increased scrutiny of debt-fueled outbound investment by aggressive Chinese conglomerates. In March, central bank Governor Zhou Xiaochuan warned that outbound investments in industries such as sports and entertainment do little to aid China's economy and that more safeguards were required. One measure involved the China Banking Regulatory Commission requiring banks to prepare a risk analysis of their borrowings to five of these conglomerates — including Wanda, Anbang Group Holdings Co. Ltd. and HNA Group Co. Ltd.

The government later ordered local banks to cease funding the developer's overseas investments. Such measures have affected Wanda's overall relationships with banks, Chen Shujin, chief financial analyst at Hua Tai Securities Co., said. "It's not only Chinese banks, but banks on Wall Street will also be cautious on offering loans to Wanda."

In June, Wanda sold its entire interest in one of China's largest ski resorts, the Changbaishan International Resort in Jilin Province, to Dalian Yifang Group Co. Ltd., another shareholder in the resort, Chinese news outlet The Paper reported Nov. 29, citing the resort's registry. Control of the resort was transferred to Dalian Yifang as a result of the deal, according to the paper, but the deal value was not disclosed.

A source with direct knowledge of the matter confirmed the stake sale to S&P Global Market Intelligence. The 20 billion Chinese yuan, 21-square-kilometer ski resort, which opened in 2012, was once Wanda's flagship tourism property project. The developer acquired a 51% stake in 2010.

In July, Wanda agreed to sell 77 hotels and 13 theme parks for 63.7 billion yuan to rival Sunac China Holdings Ltd. Guangzhou R&F Properties Co. Ltd. was later included as a trading party in the landmark deal.

Wanda's subsidiaries, such as theater chain AMC Entertainment Holdings Inc., will also struggle to obtain financing, Chen added.

Wanda had been on an overseas shopping spree across industries since 2012. One of China's largest property owners, it is now the world's largest cinema operator, with 14,347 screens owned globally through a string of acquisitions. It also acquired Hollywood movie studio Legendary Entertainment, yacht maker Sunseeker International and a stake in Spanish soccer club Atletico Madrid, as well as numerous property developments around the world.

Wanda declined to comment on the impact of these government measures on its financial situation.

Toni Ho, a property analyst at RHB Osk Securities, said Wanda is going through a difficult time, adding: "The government is unlikely to relax its policy on highly leveraged property companies anytime soon.

"Changbaishan is an ideal project to cash out on as it's so big, and Wanda's payback period from financing the investment was just too long for it."

Mounting concerns

In September, S&P Global Ratings downgraded the long-term corporate credit rating of Wanda's property arm, Dalian Wanda Commercial Properties Co. Ltd., to BB from BBB-, citing a weakened market position, an unclear business model in the wake of its "abrupt decision" to dispose of most of its property development projects and risks in access to fundraising.

The downgrade triggered mandatory repayments of US$1.73 billion of offshore loans, Reuters reported Nov. 24. Wanda proposed repaying the loans within six months instead of making an immediate payment as requested by some lenders. The need for more time has since fueled market concerns over its repayment capacity.

Moody's also downgraded the property unit's issuer and corporate family ratings, a move Kaven Tsang, vice president and senior credit officer with Moody's, said was due to the company's "weakened liquidity."

While Wanda Commercial Properties has around 137.7 billion yuan of cash on hand, most of the funds remain onshore, Tsang said. Ho warned that the tightening domestic credit environment is likely to increase the company's funding costs.

As of the end of March, Wanda Commercial Properties' unaudited debt ratio was 70.61%, and its operating net cash flow was negative 1.82 billion yuan, according to data from Chinese credit rating agency Dagong Global Credit Rating Co. Ltd. The property unit delisted from Hong Kong in 2016 to seek a listing in mainland China, but has yet to complete the move.

As of Dec. 11, US$1 was equivalent to 6.62 Chinese yuan.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.