Wanda Could Take Backdoor Approach in Bid to List Shares in Shanghai

Dalian Wanda Commercial Properties is reportedly exploring opportunities for a backdoor listing on the Shanghai stock exchange, just two weeks after the company’s chairman Wang Jianlin guaranteed investors a 12 percent return if he failed to achieve a mainland listing for the company, according to a report by Reuters.

Wang, who is eager to take advantage of the higher price to earnings ratios that the mainland’s captive investor audience gives to domestically listed shares, is considering acquiring a low-value listed company, and then injecting Wanda Commercial’s assets into it, Reuters said, citing sources familiar with the proposed proceedings.

This approach of acquiring a shell company could be an alternative route to a listing for Wanda, should the mainland regulatory process for an IPO not allow the billionaire to keep a guarantee of achieving a domestic Chinese listing within the two year framework set out in the company’s plan to re-list its Hong Kong-listed shares.

China, which strictly controls the IPO process for its domestic exchanges, is facing a multi-year backlog for new listings, and some analysts believe that Wanda could be using the talk of a backdoor listing to get permission to jump the queue, or to simply pave the way for listing through an acquisition.

Following the Greenland Route to Listing

Should Wanda opt for the route of buying a Shanghai-listed shell, it would be following a trail already blazed last year by Greenland Group, another mainland property giant.

Greenland created China’s largest listed real estate developer in April last year by sending RMB 65.5 billion of its assets into its listed affiliate Shanghai Jinfeng Investment, allowing it to bypass China’s lengthy IPO regime. Even that backdoor approach still took 18 months to complete, and Greenland was only given the opportunity to use this avenue to achieve a listing after mainland authorities objected to a plan to list the state-run national champion on the Hong Kong exchange.

There are currently close to 800 companies awaiting approval for a mainland IPO, according to Reuters, with Chinese authorities signing off on an average of just 10 new listings per month.

Wanda Waiting for Opportunity to List on the Mainland

Wanda has reason to push for a quick mainland listing after the mall-building specialist essentially guaranteed investors a 12 percent return in an effort to raise financial support for buying back its Hong Kong-listed shares.

Before Wanda halted trading in its shares on April 24^th, private equity investors had reportedly already oversubscribed its plan to invest HK$31 billion ($3.99 billion) to buy back the 14.41 percent of its Hong Kong-listed shares not already owned by mainland concerns, according to a report in Caixin.

According to Wanda’s investment proposal, if the commercial developer is not re-listed on a mainland exchange by August 31st, 2018, then Wanda would repurchase the shares with interest, at an annualised rate of 8-10 percent.

Based on the performance of other foreign-listed Chinese companies which have migrated their shares back to the mainland, Wanda projects that it could boost its price to earnings ratio from the the 9.3 times that it was achieving in Hong Kong, up to 20 times if it lists on a Chinese exchange, according to the company’s investment proposal.

Many industry analysts are less convinced of the potential price-to-earnings boost for Wanda listing on the mainland. In a recent Mingtiandi survey, over 45 percent of financial analysts responding predicted that the location of Wanda’s listing won’t make a difference in its price to earnings performance over the long run, while approximately 27 percent said that the company would be somewhat successful in achieving it’s goal of a higher valuation. Just over nine percent were more positive, saying that Wanda’s attempt to re-list to achieve a higher valuation was a “no-brainer.”