Dalian Wanda Group Co. Ltd.'s surprise deal with a consortium of internet players gives it
Tycoon Wang Jianlin's Dalian Wanda Commercial Properties Co. Ltd., the property arm of Wanda Group, signed an agreement with internet giant Tencent Holdings Ltd., e-commerce retailers Suning Commerce Group Co. Ltd. and JD.com Inc., and developer Sunac China Holdings Ltd., who will take a 14% stake in Wanda Commercial for 34 billion yuan, or about $5.4 billion, from investors who acquired the interest when Wanda Commercial delisted from the Hong Kong bourse in 2016.
When the company delisted, Wang promised those who funded the privatization an up to 12% annual return if the property unit failed to go public on a mainland stock exchange by August 2018. As the deadline approaches, however, there has been no substantial progress of the listing due to stricter IPO reviews by Chinese regulators.
Wanda Commercial owns 31.5 million square meters of commercial property space, including 235 Wanda Plaza shopping malls in China, residential developments, tourism parks and hotels.
"It's smart for them to take money from Tencent or JD because the way of [retail's] future is [online to offline]. Most importantly, [Wanda Commercial] needs capital, while Tencent and JD need to counteract Alibaba," Shaun Rein, managing director at China Market Research Group, said in an interview.
Analysts said the 34 billion yuan in proceeds should match the amount of proceeds pre-IPO investors were promised. Furthermore, the new investors are well-respected, and that could help rebuild market confidence in Wanda Commercial.
Wanda Group and its units have faced severe financial difficulty since the Chinese government, as a part of a broader crackdown on capital flight, tightened scrutiny on their debt-fueled overseas deals in 2017. Wanda Commercial has to repay more than US$1.50 billion of a syndicated loan within the next few months and redeem US$600.0 million of bonds due November 2018.
Wang has vowed to seek "any method" to lower the group's debt and clear its overseas loans. The company has been selling properties in China and abroad, including recent sales in London and Australia for which it received a combined HK$10.32 billion, according to a company spokesman. More asset sales are likely needed, Moody's vice president and senior credit officer Kaven Tsang said in an interview.
Danielle Wang, a China property analyst at DBS Vickers Hong Kong, noted that the Tencent-led consortium acquired the Wanda Commercial stake at a "pretty cheap" price, since Wanda Commercial did not have much bargaining power in its current financial situation.
She said the stake buy was a good deal for Tencent and the others involved. "The shopping mall sector is recovering in China as the impact of e-commerce retailers and China's anti-corruption campaign is dimming," she explained, noting that the sector is also benefiting from accelerating consumption.
Along with the new influx of cash, Wanda Commercial can use the online and e-commerce resources of Tencent, JD.com and Suning to expedite the development of a nationwide offline and online integrated business, Moody's vice president and senior credit officer Kaven Tsang said in a Feb. 2 note.
"In the future, we may see Wanda [Commercial's] malls go online through Tencent's [online messaging app] WeChat, while JD.com can establish offline retail in Wanda [Commercial's] stores," Koh Yew Hong, managing director and retail lead for Accenture Asia Pacific, said in an interview.
Wanda Commercial has also announced it will shift its primary business focus away from property development and toward real estate management, with a planned name change to Wanda Commercial Management Group. Analysts expressed concern about such a move, particularly now when the mall business in China is recovering.
Developers and investors are less reliant on the Wanda Commercial brand and management experience than they once were, DBS' Wang said, meaning they will be less eager to acquire Wanda's projects and pay it management fees to run the properties. Instead, there will be more developers building and selling their own malls, she added.
As of Feb. 2, US$1 was equivalent to 6.30 Chinese yuan.
