Country Garden, Yonghui Offload Wanda Stakes as PAG-Led Investors Take Control

Chinese developer Country Garden has agreed to sell its minority stake in the mall business of embattled peer Dalian Wanda Group for RMB 3.07 billion ($428 million), as the heavily indebted builder continues to liquidate assets amid a protracted funding crisis.

The disposal of its 1.79 percent stake in Zhuhai Wanda Commercial Management Group, which managed 494 malls in China as of November, comes a day after Country Garden narrowly averted an onshore default by repaying a RMB 800 million ($111 million) bond. China’s largest developer by sales in 2022 had defaulted on a $15.4 million offshore coupon payment in October.

“(Country Garden) is actively resolving the periodic liquidity pressure. As the Group only holds a minority interest in (Zhuhai Wanda), the company is of the view that it will be beneficial to the company that the disposal can lock in a more appropriate transaction price and exit path in advance to avoid the significant uncertainty of the timing of and amount realised in a future exit and effectively protect the realisation value of the company’s strategic investment assets,” the company said in a stock exchange filing on Thursday announcing the planned disposal.

Country Garden’s announcement came a day before Chinese supermarket chain operator Yonghui Superstores also said that it was planning to sell a minority stake in Dalian Wanda Commercial Management Group, the holding company of Zhuhai Wanda.

Selling on Installment

Country Garden said it is selling its stake in Zhuhai Wanda back to Dalian Wanda Commercial as it seeks to restructure its offshore debt.

The Foshan-based developer is set to be compensated for its shares in three installments, with the final payment due no later than March 2024. Upon completion of the proposed transaction, Country Garden will cease to have any equity interest in the mall operator.

Despite its own distress, and Wanda’s desperate circumstances, Country Garden is selling back the shares it had acquired in July 2021 for virtually the same value in US dollar terms. The company had invested RMB 3.23 billion (then $500 million) as part of a RMB 38 billion equity infusion by a consortium of investors including Hong Kong-based private equity firm PAG, Ant Group, Tencent, and CITIC Capital, among others, according to Zhuhai Wanda’s draft application for a listing on the Hong Kong stock exchange.

The equity investment, which took place between July and August 2021, saw the investors acquiring 21.17 percent of Zhuhai Wanda at a pre-money valuation of RMB 180 billion ($28 billion). The consortium was led by PAG, which picked up a 9.9999 percent stake for $2.8 billion.

Under the terms of the equity investment, Wanda agreed to repay investors RMB 30 billion ($4.2 billion) plus interest if Zhuhai Wanda failed to list by the end of 2023. Zhuhai Wanda has since made four unsuccessful attempts to list its shares on the Hong Kong bourse, most recently in June.

The listing’s failure saw Dalian Wanda Group’s billionaire chairman Wang Jianlin ceding control of Zhuhai Wanda earlier this week, with PAG and other investors increasing their combined stake in the mall developer to 60 percent. Wang, who built Wanda into China’s largest mall developer, saw his holding reduced to 40 percent from 78 percent.

Dalian Homeboy Buys In

Following Country Garden’s notice to the Hong Kong exchange, Yonghui Superstores announced the planned sale of its 1.43 percent stake in Dalian Wanda Commercial for RMB 4.5 billion ($635 million), with the company set to be paid in eight phases concluding in September 2025.

The buyer of Yonghui’s stake is a unit of Dalian Yifang Group, a holding company controlled by long-time Wang Jianlin confederate Sun Xishuang. Dalian Yifang has invested in hospitality, healthcare, sports, financial services, and education, and had sold a 1.5 percent stake in Dalian Wanda Commercial to Yonghui for RMB 3.5 billion in December 2018.

Backed by e-commerce giant JD.com, Fuzhou-based Yonghui has also faced challenges in the past few years, with the company’s nationwide store count falling to 1,033 at the end of 2022 from nearly 1,500 stores in 2019.

“The purpose of the transaction is to revitalise the company’s assets, which is in line with the company’s strategy of reducing investments,” Yonghui said in the announcement, adding that the transaction is subject to shareholders’ approval.

Tough Times

Country Garden has seen its sales plummet amidst China’s property market slump. The company recorded sales of RMB 6.11 billion in November, a 76.51 percent year-on-year decline. That followed an 81.1 percent year-on-year drop in October, the biggest drop in six years and coming after a 80.7 percent decline in September.

“The negative outlook reflects Fitch’s view that the sector’s challenging operating and funding environment may persist, further dampening the company’s financial flexibility,” ratings agency Fitch said in a November commentary.

In November, Chinese insurer Ping An Group offloaded its entire 4.9 percent stake in the cash-strapped developer and refuted reports that it would take over the company.