After ratcheting down the size of its Hong Kong initial public offering this week, China’s Dalian Wanda Commercial Properties has attracted enough buyers on the first day of order taking to sell out the entire $3.8 billion in shares.
The Beijing-based shopping mall developer owned by China’s fourth-richest man – Wang Jianlin – accomplished the fast sale on Monday after reducing the size of its IPO by about a third after investors showed signs of balking at the company’s original $6 billion target.
Wanda is offering 600 million new shares in a price range from HK$41.80 to HK$49.60, according to a story in Reuters. Final pricing for the December 23rd IPO will be set on December 16th.
But what if this new valuation still isn’t cheap enough? China’s ecommerce wave is rapidly putting pressure on traditional retail, and Wanda’s list of properties looks particularly vulnerable.
Wanda Beset by Debt After Building Emerging City Mall Empire
The Reuters account listed a number of concerns from analysts regarding the RMB179.7 billion ($29.2 billion) in debt that Wanda has built up on its way to erecting 100 shopping malls in just over a decade. The developer’s gearing ratio reached 87.8 percent in its most recent financial statements published in June – which is said to be more than double the industry average.
While China’s overall retail sales picture has been a positive one, taking on this much debt may be particularly hazardous given the pressure coming to bear on the mall industry from ecommerce – especially in the mid-to-low end malls in developing cities where Wanda has built most of its empire.
A quick scan of Wanda’s list of 100 shopping centres shows that while the company has some projects in first-tier cities such as Beijing and Shanghai, 39 out of those 100 shopping centres are in third-tier cities, and 52 are in second-tier communities in China. And among its top tier city locations, Wanda’s projects are often located in suburban or peripheral locations, such as its Shanghai locations in Baoshan and Songjiang districts.
Small City Malls Most Vulnerable to China’s Expanding Ecommerce
Wanda’s roster of locations in rural China might be just the type of list that Alibaba’s Jack Ma has pinned to his wall in Hangzhou when targetting the expansion of his ecommerce empire.
According to data from iResearch, China online shopping reached a gross market value of RMB 691.41 billion in the third quarter of 2014, and figures from China’s National Bureau of Statistics showed that online shopping made up 10.6 percent of total retail sales of social consumer goods. And ecommerce’s share of the market has been rising steadily.
While high-end malls in China’s major cities are holding their own with a mix of hard to find brands and dazzling flagship stores, mid-to-low end malls in dusty cities are just the sort of places that make buyers long to stay at home and shop in their pyjamas.
As Steven McCord, director of China retail research with JLL Jones Lang LaSalle, told the SCMP earlier this year, “Low-end, strata-sold shopping malls will be the first to lose out from the rise of the likes of e-commerce portal Taobao, while mid-market malls are being forced to look at reorienting tenant mix and mall design around entertainment, services and other experience-related offerings.”
Wang Jianlin himself seems to realise this threat already, as the mall mogul moved to set up an ecommerce initiative with Alibaba and Tencent earlier this year, aimed at getting more traffic into his Wanda Plaza shopping centres.
Perhaps the billionaire’s best strategy at this point, however, might just be to sell off shares in his malls to a public still eager to get a piece of China’s growing consumer culture, before we find out too much more about whether this trend is growing in Dalian Wanda’s direction.