Dalian Wanda Group was once the standard-bearer for Chinese companies investing overseas as the mall builder headed by Wang Jianlin bought up everything from trophy buildings to cinema chains in a global expansion drive. But that shopping spree appears to have come to an abrupt end as China’s regulators take aim at some of Wanda’s most high-profile overseas deals, according to an account today in the Wall Street Journal.
The government has determined that six of Wanda’s foreign investments, four of which have already closed, have violated capital controls that were enacted last year, according to reports. The disciplinary measures ban Wanda from obtaining further financing for these acquisitions or selling them off to local companies, and mark the second time in one month Wanda has been targetted by the government for reckless overseas investment.
Regulators Deal a Blow to Wanda’s Foreign Ambitions
All six investments are in the entertainment industry, according to the Journal account, including Wanda’s 2012 purchase of US theater chain AMC Entertainment Holdings and its 2016 buyout of film producer Legendary Entertainment. Although the measures do not seem to apply to Wanda’s real estate acquisitions, they are a major blow to Wanda’s ambitions as the company joins a growing club of mainland investors that have drawn close scrutiny from the government.
On June 20, China’s banking regulators told the country’s major state-owned banks that stricter rules on outbound investment rolled out last November would be applied to the six Wanda deals in question, the Journal reported. The rules enacted by China’s cabinet, the State Council, discouraged mainland firms from investing in overseas real estate and entertainment projects.
Wanda probably wishes it had been told earlier that its acquisitions were in breach of China’s capital controls. Four of the six deals already closed between 2012 and 2016, including the purchases of AMC, rival theater chain Carmike Cinemas, Legendary, and British yacht maker Sunseeker International.
The two remaining deals, for European theater operators Odeon & UCI Cinemas Group and Nordic Cinema Group, have not yet closed. As the pair of cinema chains are being acquired by Wanda’s AMC subsidiary in the US, they do not seem to fall under the jurisdiction of Chinese regulators.
Wanda’s $1 billion bid to purchase TV studio Dick Clark Productions ended in March with the seller suing the mainland conglomerate for non-payment after China’s National Development and Reform Commission (NDRC) announced last December that they were monitoring “irrational” overseas deals – including those in the entertainment sector.
Regulator Spells Out Penalties for Wanda
The new measure apparently prevents Wanda from getting additional financing from Chinese banks for the four projects it has already bought, which could jeopardizing the group’s ability to finance the two deals that have not yet closed. The regulators are also banning Wanda from using its mainland funds to finance any of the deals, selling any of the foreign assets to China-listed firms or injecting any of the assets into the group’s domestic units.
The reported crackdown on Wanda’s overseas deals came shortly after China’s banking regulator told some of the country’s biggest lenders to review borrowing by Wanda along with two other mainland mega-investors, HNA Group and Fosun International, and Rossoneri Sport Investment (which bought an Italian soccer club AC Milan for $828 million last year). The instructions were handed down by the China Banking Regulatory Commission in early June.
Regulator Moves Could Explain a Sunac Vulture Deal
The regulatory crackdown helps explain Wanda’s announcement last week that it will be selling 76 hotels, along with a 91 percent stake in its 13 theme park projects, to Tianjin-based developer Sunac in a mammoth transaction of RMB 63.18 billion ($9.3 billion). Wanda will facilitate the deal by lending Sunac $4.35 billion of the funds it needs to acquire the assets.
Wanda’s abrupt exit from the amusement park business and offloading of prized hotel assets to a rival developer appears to be a move aimed at trimming the group’s heavy debt load, which has put Wanda in the crosshairs of China’s regulators and hurt its chances of relisting its main property business, Dalian Wanda Commercial Properties, on a mainland stock exchange.
In its most recent annual report at the end of 2015, Dalian Wanda Commercial Properties reported total debt of RMB 222 billion. Standard & Poor’s marked down the company to BB+ while downgrading its parent conglomerate, Wanda Group, in a review of the group’s credit last December.
Wanda Still Pursuing Overseas Property Deals
While regulators have clamped down on Wanda’s cross-border entertainment deals, it’s not yet clear how the regulatory action will affect Wanda’s billions of dollars in overseas property deals. The group agreed to spend £470 million ($595 million) to pick up a new project in London’s Nine Elms Square, it was announced on June 21, the day after the China’s banks were advised that Wanda’s overseas entertainment projects were now illegal.
In late April, Wanda landed a $700 million loan from Ping An Bank for its Chicago Vista Tower, a billion-dollar mixed-use luxury skyscraper project. Wanda has announced some $20 billion in overseas deals since the start of 2016.