Companies ignore changing domestic regulatory environment: experts
There are many lessons to be learned from the setback of Chinese conglomerates Dalian Wanda Group and HNA Group, which were making global headlines just over a year ago for their aggressive overseas expansion but are now facing a world of trouble, Chinese experts noted on Tuesday.
Wanda and HNA have been under serious fire in recent months, with their credit ratings having been downgraded multiple times. They're back in the headlines, but now it's one piece of bad news after another about their financials, shareholding structures and overall business strategies.
On Thursday, Fitch Ratings, one of the top three global rating agencies, downgraded Dalian Wanda Commercial Property's long-term foreign-currency issuer default rating, the senior unsecured rating and the rating of its outstanding US dollar senior notes two notches to BB plus from BBB, citing offshore liquidity concerns after Wanda failed to issue offshore notes in 2017.
"Wanda failed to issue offshore senior notes by the end of 2017 despite gaining the National Development and Reform Commission's [China's top economic planning agency] approval for .5 billion in issuance quota," Fitch Ratings said in a statement.
S&P Global Ratings, another top global ratings agency, downgraded Wanda Commercial Property to a junk rating in September 2017, citing the company's outlook and access to funding.
HNA Group has also had its fair share of troubles in recent months. In November 2017, S&P Global Ratings downgraded the company's overall creditworthiness by a notch to Bb, well below the sub-investment grade territory, citing the company's debts.
The airline-to-property conglomerate's shareholding structure has also been under scrutiny following its global acquisition spree that drew regulatory scrutiny both at home and abroad.
Experts said on Tuesday that the companies' woes, perhaps more than anything else, were due to misreading the regulatory environment both in China and abroad.
"These companies need political savvy. They need to keep in touch with trends in a country's political and economic developments. If they step over the line, all types of risks would emerge," said Yan Yuejin, research director at the Shanghai-based E-house China R&D Institute.
Yan told the Global Times on Tuesday that Wanda and HNA's aggressive moves involving overseas real estate projects sparked concerns among Chinese regulators that these companies were shifting assets abroad to evade domestic regulations and might even be engaged in money laundering.
Lu Zhenwang, founder of Shanghai Wanqing Commerce Consulting, said the companies had ignored a growing trend in China of tightening financial regulations.
In 2017, there was a major change in the policy environment in China, "especially in terms of reining in financial risks. Given that, overseas investments would doubtless have been affected," Lu told the Global Times on Tuesday.
The experts said that the companies have also ignored substantial risks in some overseas projects at the height of their acquisition drives and were careless about running up debt.
"HNA bought too many companies, many of which having nothing to do with its core businesses, which created lots of difficulties for management and therefore generated risks," Lu said.
HNA spent more than billion in the three years before the second half of 2017 on foreign assets, while Wanda invested about 245.1 billion yuan (.59 billion) during the same period, according to media reports.