CBRC boss Guo Shuqing is ready to sweat some of China’s biggest borrowers
Stock prices for companies controlled by Dalian Wanda Group, HNA and Fosun were punished by investors on Thursday after China’s banking regulator instructed some of the country’s biggest banks to scrutinise lending to the mainland’s most prominent overseas investors.
The three mainland mega-investors, along with tycoon Li Yonghong’s Rossoneri Sport Investment – which acquired Italian soccer club AC Milan for $828 million last year – have been targetted by China’s banking regulator for heightened scrutiny, as central authorities grow increasingly anxious over the risks posed by excessive leverage in the economy.
Citing the potential for “systemic risk,” in emailed instructions shown to Mingtiandi, the China Banking Regulatory Commission (CBRC) asked financial institutions earlier this month to review borrowing by the four conglomerates and report to the regulator on any potential dangers. Similar instructions are said to have been distributed to some of China’s biggest lenders, including ICBC, China Construction Bank, Bank of Communications, and Guangzhou Development Bank, according to an account in the South China Morning Post.
Wanda Calls Crackdown Fake News
Could this be a swan song for Wanda’s debt-fueled acquisition drive?
In a statement issued today, Wang Jianlin’s Dalian Wanda Group denied the existence of any such communication from the CBRC.
“Today, someone on the Internet viciously speculated that some banks, including China Construction Bank, issued a notice to dump Wanda’s bonds. After investigation, banks such as China Construction Bank have never issued such notices, and speculations online are just rumors. We hereby state that all operations are fine, and we sincerely hope that people will not trust or circulate rumors.,” Wanda said in an unsigned statement.
Despite the reassurance, shares in Shenzhen-listed Wanda Film Holding – Wanda’s only listed unit – fell more than nine percent on Thursday before trading was halted. Bonds issued by Wanda Properties International 2024 fell as much as 10.7 cents on the dollar to 101 cents on Thursday, according to an account in Bloomberg.
Top Conglomerates Suffer Stock Slide
And Wang Jianlin had company in his Thursday financial misery. Fosun International, which purchased Chase Manhattan Plaza for $725 million in 2013 and has borrowed heavily to build an overseas portfolio of $15 billion in assets, saw its shares fall by 9.6 percent in Hong Kong on Thursday before closing down 5.8 percent. The company’s Shanghai-listed pharma firm fell 8.1 percent in Shanghai.
HNA, which spent $20 billion on overseas assets last year according to Dealogic, also was a source of investor anxiety. The group’s Hong Kong-listed HNA Holding Group slid 6 percent today, while it’s Shenzhen-listed HNA Investment Group fell by 2.7 percent.
Finance Sector Hits a Deep-Freeze
PBOC chief Zhou Xiaochuan spoke out on lending risk earlier this week
The lending crackdown by the CBRC is the latest round in a financial discipline campaign ordered by China’s top brass as concerns grow about the risk of an economic crisis triggered by risky borrowing.
Just last week the head of Anbang Insurance, another major Chinese cross-border investor, was detained in an ongoing crackdown on wild west practices in the country’s insurance sector. Wu Xiaohui was taken away at the apparent request of the China Insurance Regulatory Commission (CIRC) after the company sold high-yield, short-term deposit products to finance purchases such as its $1.95 billion acquisition of the Waldorf Astoria Hotel.
Speaking at an event in Shanghai this week, China’s central bank governor Zhou Xiaochuan cautioned, “If we want to avoid a financial crisis, we must ensure the health of our financial institutions and we should not tolerate high leverage, insufficient capital or high non-performing loans,” according to an account in Bloomberg.
That public warning followed after China’s biggest banks had already begun privately pulling in the reins on prolific investors such as Wang Jianlin. The Bank of China started scaling back its holdings of Wanda’s bonds early this month, according to an account in the Wall Street Journal, after the company’s debts had been flagged as risky.
Despite this apparent crackdown, it was revealed this week that Wang Jianlin and Wanda have committed to a $595 million London residential project, tacking on a site at the New Covent Garden flower market near the Battersea power station to a neighboring plot that it had bought in 2013 for a $1.1 billion project.
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