China's Wanda steps back from theme park, hotel drive with $9.3 billion Sunac deal

[July 11, 2017]  By Clare Jim

HONG KONG (Reuters) - Chinese property giant Dalian Wanda Group plans to sell tourism projects and hotels in the country to Sunac China <1918.HK> for $9.3 billion, as it dials back its theme-park ambitions and brings down its debt pile.

The sale - the second-biggest real estate deal ever in China according to Reuters data - will help strengthen Wanda's case for a mainland listing after its property unit delisted from Hong Kong last year. For Sunac, it would mean ownership of a wide portfolio of tourism developments at a time when it is spending billions on property and technology assets.

Wanda said it would offload 91 percent of thirteen cultural tourism projects, which usually include theme parks and leisure complexes, and 76 hotels to the acquisitive Tianjin-based developer Sunac for 63.18 billion yuan.

After the sale, Wanda will, however, continue to play a role in operating and managing the projects.

Wanda, which also has interests in films and sports, had plans to build at least 20 cultural projects around China. Its billionaire owner Wang Jianlin had last year said his "wolf pack" of parks would beat U.S. rival Walt Disney Co <DIS.N>.

"This (deal) signifies a retreat from Wanda's previous strategy in cultural tourism, and marks a pivot to an asset-light strategy," said Qin Gang, senior researcher at State Information Center, a government-linked think tank.

Beijing has been encouraging development of cultural theme parks as part of a local tourism drive, tapping consumers' growing budget for entertainment. There are over 300 such facilities in China, with most struggling to turn a profit.

Wanda's parks are still under construction, except three that have been completed. Two that opened in Nanchang and Hefei last year do not rank in the top 20 by attendance for Asia Pacific, consultancy AECOM's 2016 theme park index shows.

The firm, which had earmarked a more than 300 billion yuan ($44 billion) investment for its cultural and tourism projects, did not give a reason for the sale to Sunac, but local business magazine Caixin quoted Wang as saying the deal would ease the debt burden on Wanda's property unit.

"Through this asset transfer, Wanda Commercial's debt ratio will be greatly reduced, all the proceeds will be used to repay loans. Wanda Commercial plans to repay most of the bank loans this year," Wang told Caixin.

Analysts said the lower debt load could help Wanda's plans to list the unit in Shanghai and to attract a higher valuation.

S&P downgraded Wanda Commercial in December citing rising financial leverage and slower-than-expected asset disposal at China's largest commercial developer. Another downgrade would push the rating into "junk" category.

The group has been investing heavily in entertainment, leisure and financial businesses and the buying spree has drawn the attention of Chinese regulators, who ordered lenders last month to assess exposure to overseas deals by Wanda, HNA Group, Anbang Insurance nd Fosun.
 

People walk around the plaza of a Wanda Mall in Nanchang, Jiangxi province, China, September 3, 2016. Picture taken September 3, 2016. REUTERS/Stringer ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. CHINA OUT. NO COMMERCIAL OR EDITORIAL SALES IN CHINA.

Wanda has been very active globally, with deals for U.S. cinema chain AMC Entertainment Holdings Inc <AMC.N>, Hollywood film studio Legendary Entertainment, Infront Sports & Media AG and Spanish soccer team Atletico Madrid.

SUNAC DRIVE

Sunac too has been shopping.

In the past year, boss Sun Hongbin has led the group on an acquisition spree, including $2.1 billion for the real-estate assets of Legend Holdings, parent of PC-maker Lenovo, and $2.2 billion for a stake in Leshi Internet <300104.SZ>, a unit of LeEco - a Chinese Netflix-to-Tesla-like conglomerate.

The stake in Wanda cultural and tourism projects will cost Sunac 29.58 billion yuan. The price tag for the hotels is 33.6 billion yuan. The firms are expected to sign an agreement by the end of this month.

Sunac will pay for this from its cashpile that stood at over 90 billion yuan at the end of June, Caixin quoted Sun as saying.

It had total liabilities of 168.6 billion yuan at the end of 2016, versus 64.5 billion yuan the year before.
 

Shares in Wanda Hotel Development <0169.HK> surged more than 150 percent after news of the deal, though none of the hotels being sold are included under this entity.

Wanda said Sunac will be responsible for all the loans for the projects, but the brand name and design will be unchanged.

Sunac, whose shares in Hong Kong were suspended from trading ahead of what it said would be a "very substantial acquisition" announcement, declined to comment further.

Shares in the developer have more than doubled in value this year, but analysts worry Sunac could have bitten off too much.

It has a negative outlook rating from Moody's, which said in April Sunac's leverage had deteriorated significantly due to large amounts of debt it had raised to support acquisitions.

(Additional reporting by Pei Li in BEIJING, Reporting by Clare Jim, writing by Adam Jourdan; Editing by Himani Sarkar)

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