In what appears to be a snap decision, Chinese property giant Dalian Wanda Group agreed to sell 76 hotels and 13 cultural and tourism projects to Sunac China, a Tianjin-based developer, for 63.17 billion yuan.
Why is Wanda selling its assets? One speculation is that it may have something to do with the country’s e-commerce boom.
In 2012, Wanda founder Wang Jianlin and Alibaba’s Jack Ma had a high-profile bet of 100 million yuan on whether China’s online retail market would reach half of the size of offline retail by 2020. Ma was positive while Wang bet that it won’t happen.
China’s online retail sales reached 5.16 trillion yuan as of last year, which represents 15.5 percent of total retail sales in the country.
Now, for online retail sales to make up for 50 percent of total retail sales within three years, it seems unlikely. That means Wang is probably going to win the bet.
That said, the growth pace of online shopping over the past few years has put a lot of pressure on physical shops. And that is bad news for Wang, who still draws significant revenue from mall operations across the country.
Indeed, Wanda has already started to steer toward an “asset light” operation model in recent years and shrink its mall portfolio.
The company now prefers to provide its brand and operation expertise while getting its partners to pay for land and construction costs.
It’s reported that Wanda has signed contracts for 28 asset-light projects in the first half of 2017, and intends to add 40 to 50 such projects per annum from this year.
In this deal, for example, Wanda will continue to play a role in operating and managing the projects sold to Sunac.
Among the bunch of projects included in the deal, some of them were just confirmed several months earlier. Wang was said to have been very excited and talked up those projects not too long ago, even hiring leading online opinion leaders to write articles to promote those ventures.
Now, according to a joint announcement from Wanda and Sunac, they agreed to sign a detailed contract before July 31, and complete the transaction as soon as possible.
This brings us to the second question: Why is Wanda in a rush to offload the assets?
There were reports last month that the China Banking Regulatory Commission asked some banks to provide information on overseas loans made to Wanda, Anbang Insurance Group, HNA Group, Fosun International.
The news triggered a sell-off of Wanda bonds and some other Chinese securities.
It could be out of fear that issuing bonds as a funding channel could clog up suddenly that Wanda wants to play safe.
Wang, in fact, has admitted that all proceeds from the Sunac deal will be used for loan repayment.
Meanwhile, Wanda has been trying to list in the mainland stock market after it took private a flagship unit that had been listed in Hong Kong.
Wanda initially intended to complete listing in mainland market before August 2018. However, China’s top securities regulator has slowed IPO approvals since May this year.
Amid tightening property policies, authorities are not so keen on public listing of large property developers such as Wanda.
By repositioning itself as an operator of commercial property and entertainment complexes rather than a property developer, Wanda might be able to speed up the share sale approval process and get a better valuation too.
In the meantime, Sunac’s founder Sun Hongbing is in the spotlight as the size of deal is even bigger than the company’s own market cap of HK$57.7 billion.
The deal will enable Sunac to enlarge its land bank by over 30 percent and help it become the nation’s second largest property developer in term of land bank value.
Sun has built his reputation as a bold adventurer.
If the mainland property sector stays healthy in the next few years, Sunac might become a winner and Sun could join the club of the nation’s richest men, a list that includes names such as Wang Jianlin, Jack Ma and Tencent’s Pony Ma.
This article appeared in the Hong Kong Economic Journal on July 11
Translation by Julie Zhu
[Chinese version 中文版]
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