Sell 76 hotels and 13 tourism programs to Sunac for .3 billion
Dalian Wanda Group agreed on Monday to sell 13 tourism programs as well as 76 hotels to Tianjin-based property company Sunac China Holding in a deal worth 63.18 billion yuan (.3 billion).
The deal would be a boon to Wanda as it is expected to reduce the conglomerate's debt level and help it get listed on a mainland stock market, experts said.
They also pointed out that Sunac's unexpected move into new business would pile up Sunac's debt and panic investors.
Sunac will acquire 91 percent of the 13 cultural and tourism programs after paying 29.58 billion yuan to Wanda, according to a statement Wanda sent to the Global Times on Monday. The Hong Kong-listed company will then undertake all the existing loans for developing those programs.
The company also agreed to buy out 76 hotels owned by Wanda including Wanda Realm Beijing and Wanda Reign Wuhan for 33.6 billion yuan, the statement noted.
The two firms are expected to sign a detailed agreement by July 31, and complete the transfer of payment, assets and shares "as soon as possible," according to the statement.
After the deals are settled, the transferred cultural and tourism programs will still use the Wanda brand. Wanda is also responsible for their construction, operation and management.
"It's a good bargain for Wanda, not only because it is the biggest-ever sale in the domestic property market," Yan Yuejin, research director at Shanghai-based E-house China R&D institute, told the Global Times on Monday.
Yan noted that the deal would significantly ease the company's capital burden and improve its profitability while also fitting the company's ambition to push forward its strategy of being asset-light.
Boosted by the news, the share price of Dalian Wanda Commercial Properties has surged to HK.85 on Monday's close, up 46.5 percent from the opening.
"Wanda's debt ratio would decline significantly following the deal because the proceeds will all be used to repay loans, and Wanda plans to pay back most of the bank debts this year," Wanda's chairman Wang Jianlin was quoted as saying in a report by Beijing-based financial news outlet Caixin on Monday.
Wang also noted that he expects the rents from Wanda commercial buildings to exceed property incomes two years after the transaction is completed, said the report.
During the past two years, Wang has iterated many times that Wanda would move away from its property roots and expand into more competitive, innovative and light-asset businesses such as entertainment, sports and finance.
The reduction of real-estate assets will increase Wanda's financial liquidity and make it easier to be listed in the A-share market, Zhang Dawei, chief analyst with real estate agency Centaline Property, told the Global Times on Monday.
While Wanda is shedding tourism and property projects, real estate firm Sunac, in contrast, is unexpectedly rushing to jump into these sectors, which may signal the company's exploration of new growth drivers as the property market slows down, experts said.
Sunac had not responded to calls from the Global Times as of press time.
Some market analysts have linked the fund involved in the deal with the developer's leveraged buyout, which amplified its acquisition ability based on the company's actual capital pool.
However, Sun Hongbin, chairman of Sunac, stressed in an interview on Monday that the money all came from the company's own funds, Caixin reported.
"As of the end of June, there is more than 90 billion yuan in cash in our company account. And in the first half, Sunac's sales revenue reached 110 billion yuan," Sun was quoted as saying in the report. He is also confident that the Sunac's sales performance would surpass 300 billion yuan in 2017.
On Monday, Sunac's shares were suspended from trading ahead of the announcement of a "very substantial" acquisition, the company said. The developer's share price closed 6.9 percent lower at HK.8 on Friday due to investors' concern over its association with capital-crunched LeEco.
In January, LeEco secured a new round of investment worth 15.04 billion yuan from Sunac.
Last year, Sunac went on an aggressive acquisition spree, with 16 property projects spanning across China, which pushed forward the company's debt-to-asset ratio from 75.9 percent in 2015 to 121.5 percent in 2016.
Against this backdrop, "Sunac's debt would record a new high this year," Yan said, pointing to the lurking danger of paying back those debts, which might cause alarm among its investors.