China’s Wang Jianlin has been through liquidity crunches before, but this time is different. Amid a protracted slump in the real estate market, he’s trying to push through a $4 billion IPO that’s already failed three times, and a planned bond sale was just shelved.
Wang Jianlin, the billionaire founder of China’s entertainment-to-property conglomerate Dalian Wanda Group, has become the country’s latest real estate tycoon to grapple with a mountain of maturing debt. The mogul managed to survive liquidity crunches before, but this time his challenges are heightened by regulatory obstacles and financing channels that are dwindling.
Wang has been trying to raise funds by listing Zhuhai Wanda Commercial Management, the group’s property management arm, but the prospects look increasingly dim. The unit refiled late Wednesday its prospectus for a potential Hong Kong listing for the fourth time. All three previous attempts made since 2021 have failed amid volatile market conditions and increased scrutiny of the property sector.
Dalian Wanda Commercial Management (DWCM), the parent of Zhuhai Wanda, may have to repay pre-IPO investors up to 30 billion yuan ($4.2 billion) if the listing fails to take place by end of this year, according to terms disclosed in a recent public letter from China’s securities regulators. Separately, the country’s regulators have also ended Wanda Commercial’s application to issue about $830 million worth of bonds, after the firm itself decided not to proceed, according to a notice published online.
Dalian Wanda didn’t respond to emailed requests seeking comment. Shen Meng, managing director of Beijing-based boutique investment bank Chanson & Co., says companies and their underwriters typically withdraw such applications due to weakened debt servicing abilities.
It’s a dramatic change in fortune for Wang, who had once harbored ambitions of challenging U.S. entertainment giant Disney. Wang has seen his wealth plunge almost 80% from its peak of $33 billion in 2016, when he was crowned Asia’s richest person. Today, he’s worth $7.8 billion, and the empire he built since 1988, which has investments in real estate, finance and movie theaters, faces a rapidly deteriorating environment.
Wang applauds his performers at the opening show of the Hefei Wanda City on September 24, 2016 in Hefei, China.
Feature China/Future Publishing via Getty Images
Despite earlier rescue packages to prevent a full-blown crisis in the property sector, which gave Wang a small window of opportunity to issue bonds in the offshore junk market, Beijing eventually wants to direct funding away from real estate so as to wean the economy off its former dependence on the property sector.
Authorities have also refrained from broader stimulus measures including boosting spending on infrastructure and property, even though economists at several major banks have lowered their growth forecasts for 2023 due to China’s lackluster recovery following the lifting of most Covid-related restrictions earlier this year.
“His (Wang’s) challenges are only bigger now,” says Chen Zhiwu, chair professor of finance at the University of Hong Kong. “IPOs, bond issuance, bank loans … all these funding opportunities are now first and foremost reserved for SOEs [state-owned enterprises] and strategic industry players. It is definitely not easy for real estate developers and companies in not so strategically important sectors.”
Moody’s Investors Service estimates that DWCM can pay off its roughly $13 billion in debt coming due over the next 12 months, including the IPO outlay that is also classed as liabilities, with its cash on hand and in part by redeeming short-term investments. But absent new funding, the company’s liquidity will “weaken significantly,” the research firm said in a May 10 research note.
Wang has reportedly acknowledged the difficulties facing the IPO, and expressed confidence in overcoming the challenges. The billionaire was recently able to bolster investor confidence even after rating agencies downgraded DWCM further into junk territory on concerns about the potential cash outlay for a failed IPO. He is said to have scraped together enough cash to repay a $275 million private-debt facility that matured on Wednesday, and also convinced the state-controlled bad-debt manager Huarong to inject $232 million worth of assets into a local joint venture.
DWCM’s offshore bonds due July 2023 recently surged to more than 90 cents on the dollar, but the dollar bond issued in January now trades below 60 cents, a level typically considered well into distressed territory, according to prices compiled by Shanghai-based financial information platform Dealing Matrix.
Regulators have a long list of concerns for the IPO. In early June, after its attempt to list in Hong Kong failed for a third time in April, the China Securities Regulatory Commission told Zhuhai Wanda in another public letter to supply additional information, and provide explanations for everything ranging from internal controls to related-party transactions and to the credibility of its operating data. In a June 5 research note, S&P Global Ratings analysts led by Iris Cheng wrote that there is “no clear guidance on the timing of the regulator’s final feedback,” which led the analysts to think the IPO approval is “more uncertain.”
Regulators are also questioning the almost $2 billion in cash dividends paid between 2019 and the first half of 2022, an amount exceeding Zhuhai Wanda’s cash inflow during the same period. The payout amounts to a way of pacifying investors amid the repeatedly delayed IPO process, says Chanson & Co.’s Shen.
DWCM has started negotiating with the pre-IPO investors as well, and it may secure an extension from some, according to a May 31 research note from Fitch Ratings. But at least one investor, namely billionaire Yang Huiyan’s property developer Country Garden, doesn’t want to hold the shares beyond the IPO deadline, Chinese financial media Caixin reported.
The investors, which also include Tencent, Ant Group, Citic Capital and PAG, put in about $6 billion in 2021 in the property management unit at a valuation of $28 billion. The valuation is unlikely to hold up now given the broader downturn in the real estate sector, as well as the lackluster stock market in Hong Kong, says Shen Chen, a partner at Shanghai Maoliang Investment Management.
The interior of a Wanda department store in in Beijing’s Tongzhou district, which opened at the end of 2014.
Zhang Peng/LightRocket via Getty Images
“If Zhuhai Wanda is allowed to list, investors would probably sell as soon as they have a chance,” he says. “What about the smaller individuals who’d buy the shares in the event of an IPO? Regulators might be worried about them too.”
To Wang, the distant IPO prospect means a plan hatched as far back as 2016 isn’t coming to fruition. The billionaire, then under the belief that his business was undervalued in Hong Kong, had taken it private in a $4.4 billion deal less than two years after a 2014 listing.
He had initially wanted to relist in mainland China, where several companies—including billionaire Zhou Hongyi’s online security firm Qihoo 360 Technology—were able to fetch higher valuations simply by switching back to their home market. But for Wang, things quickly took a turn for the worse, as Chinese authorities began to crack down on a debt-fueled overseas acquisition binge to rein in financial risks and stem capital outflows.
Wang, who previously harbored ambitions to build a global entertainment and tourism empire, was forced to downsize in the years that followed to repay Dalian Wanda’s debt. The mogul sold hotels, theme parks and other tourism projects for more than $9 billion in 2017 to billionaire Sun Hongbin’s property developer Sunac and billionaire Zhang Li’s Guangzhou R&F Properties. Later, he sold stakes in Spanish soccer club Atletico de Madrid and U.S. movie theater chain AMC.
And it was also during those years that Dalian Wanda underwent a major restructuring. The remaining real estate assets were transferred into Wanda Real Estate Group, which develops company-branded malls, hotels and residential projects, according to its website. And Dalian Wanda’s entertainment unit, Wanda Cultural Industry Group, sold a minority stake in its Legendary Entertainment business last year to private equity giant Apollo for $760 million.
DWCM had also been lined up for an IPO. As an asset-light service provider, it generates sales from the maintenance and management of shopping malls, and was thought to be less likely to be in regulators’ crosshairs partly because the unit doesn’t develop property directly. But plans to list on the mainland were eventually abandoned in 2021, amid increasing wariness towards all real estate-related firms and an industry-wide crisis.
Later that same year, Zhuhai Wanda filed for the first time for a listing in Hong Kong, reportedly aiming to raise up to $4 billion. The unit that manages 425 shopping plazas had $3.8 billion in sales last year, according to its website and IPO prospectus.
The uncertain IPO process is now threatening to weigh on the entire conglomerate’s finances as well. It was recently revealed that parent Dalian Wanda had three sets of offshore loans totaling $1.3 billion tied to the listing. Terms gave lenders the option to demand early repayment if the IPO isn’t completed by May, but banks have so far held off doing so, according to a May filing.
To raise more funds, Dalian Wanda had previously sought to divest 20 shopping malls, but the company needs to negotiate first with local governments because it’s required to retain ownership of the projects for specified periods of time, according to Caixin.
It had some success recently in selling three malls in a $80 million deal to local insurance firm Dajia, according to filings and local media reports. But buyers are still harder to come by, as many of Wang’s previous purchasers are now mired in debt problems of their own. “Relatively speaking, there are now fewer private enterprises that have the financial power to acquire assets,” says Kaven Tsang, senior vice president at Moody’s Investors Service.
Chanson & Co.’s Shen says Wanda may choose to sell assets overseas to raise funds. Tsang says there is still a chance it can take out loans by mortgaging shopping malls that haven’t been pledged before. But the amount may still not be enough to fill the hole.
“It is a more troublesome situation now,” says Shanghai Maoliang’s Shen. “There doesn’t appear to be a very good solution, but I’d say Wanda should talk to its pre-IPO investors. After all, this might be easier than trying to negotiate with the securities regulators.”