Sunac China agreed to buy hotels, land and projects from Dalian Wanda Group for 63.2 billion yuan ($9.3 billion) in China’s largest property deal, as billionaire Chairman Sun Hongbin moves to take advantage of competitors shedding assets.
Sunac will buy 76 hotels from Wanda through a unit and will purchase a 91 per cent stake of 13 cultural and tourism projects, with both sides planning to sign a detailed agreement before 31 July, according to a statement. Sunac halted trading of its shares in Hong Kong on Monday, pending the announcement, after closing 6.9 percent lower on Friday.
The deal marks Sun’s biggest gambit, building on a spree totaling more than $12 billion over the past year as Sunac expands beyond its core focus on residential real estate. Sunac invested in companies affiliated with the cash-strapped LeEco empire, as Sun has said that he’s seeking ways to expand beyond property into areas from healthcare to finance.
“For Sunac, the deal signifies a move into hotels from primarily property development it focused on before,” said Kristy Hung, an analyst with Bloomberg Intelligence. “Sunac could be seeking more exposure outside of just purely property development, as growth of Chinese new home sales will likely slow in the long-run.”
Government Scrutiny
With the latest deal, Sun targeted assets from fellow-billionaire Wang Jianlin, who was among the most acquisitive Chinese tycoons up until last year. Wanda is among conglomerates including Fosun International Ltd., HNA Group Co. and Anbang Insurance Group Co. whose loans are under government scrutiny after China’s banking regulator asked some lenders to provide information on overseas loans to the companies, people familiar with the matter said in June.
Sunac has emerged as the most acquisitive Chinese developer in the past 12 months and its property holdings have expanded rapidly, from four cities in 2011 to 44 in 2016. Sunac’s 15 acquisitions since the start of last year included a deal with technology company Legend Holdings Corp. that spanned 42 property projects across 16 cities, including Beijing, Tianjin, Chongqing and Hangzhou, according to Bloomberg data. Sunac’s stock has soared almost 130 percent this year.
Sunac said it will use its own funds for the Wanda deal, and that it had more than 90 billion yuan in cash as of the end of June, Caixin reported on Monday, citing an interview with Sun. Wanda will use all proceeds from the deal to pay back loans, according to the report, which also cited an interview with Wanda’s Wang.
The transaction will allow Sunac and Wanda to “fully play” to their advantages, and both parties agree to cooperate in other areas such as in movies, according to the statement. Wanda will control the construction and operation over the 13 cultural projects and the firms will cooperate in a number of other areas, including films, according to the statement.
Wanda Hotel Development Co. surged as much as 155 percent in Hong Kong trading before paring most of those gains after a representative said the deal has no direct impact on the Hong Kong-listed company. Wanda Properties International Co.’s bonds also rose.
Shedding Assets
For Wang, China’s second-richest man, the deal builds on his push to shed real-estate assets to focus on collecting rent rather than developing properties. Wanda has increasingly been recruiting partners for its developments to ease its capital burden. Last year, the group signed a cooperation agreement with Guangzhou R&F Properties Co. to build 25 commercial projects across China.Besides paying off debt, the sale could help fund Wang’s broader ambitions to move away from his property roots to expand his entertainment empire, which now includes Hollywood producer Legendary Entertainment and AMC Entertainment Holdings Inc.
Still, selling away the bulk of his "Wanda City" projects - massive multi-billion-dollar complexes with theme parks and lodgings - for 29.6 billion yuan represents a departure from Wang’s past predictions that he’ll build a tourism empire bigger than that of Walt Disney Co. Wanda’s brand will remain and the group will still manage those projects, according to the statement.
"Wanda might be able to lower its debt through the sale of the properties, and this asset-light strategy could clear the way for its A-share listing,” said Chuanyi Zhou, a credit analyst at Lucror Analytics, in reference to Dalian Wanda Commercial Properties Co.’s plans to relist in China by next year. “It’s unclear if the sale of their tourism projects is good for them, especially since those tourism culture projects are Wanda’s flagship ones."
Sunac’s purchase comes amid what Citigroup Inc. predicts will be a “mega-consolidation” in the industry. Developers spent a record 96.7 billion yuan in the second quarter on acquiring competitors or their assets, according to data compiled by Bloomberg.
News by Bloomberg, edited by Hospitality Ireland
