December 6, 2017 / 4:12 AM / 11 days ago

Breakingviews - Wanda’s asset shuffle buys brief Beijing reprieve

WASHINGTON (Reuters Breakingviews) - Dalian Wanda Group’s moves to reduce leverage have won reprieve from officials, not absolution. On Dec. 4, subsidiary Dalian Wanda Commercial Properties agreed to sell a 65 percent stake in the Hong Kong-listed Wanda Hotel Development to a company wholly owned by founder Wang Jianlin. That will provide much-needed liquidity to pay down offshore loans, but the group will probably sell more foreign assets to buy its way out of Beijing’s penalty box.

The serial acquirer’s troubles started in June, when officials warned its lenders that several overseas acquisitions did not comply with regulations on outbound investment, the Wall Street Journal reported. Wang had already splashed out billions on Hollywood assets like theatre chain AMC and Legendary Entertainment studio, but his bid for Dick Clark Productions went too far, and was axed. The next month the firm abruptly sold off stakes in hotels and theme parks for $9.3 billion, which Wang said would relieve debt.

In September Standard & Poor’s slashed the commercial property unit’s rating to junk, citing worries that the asset sale would weaken its competitive advantage. That led some lenders to demand early repayment of offshore loans amounting to around $1.7 billion, according to Reuters sources. It was not clear that the company had enough cash stashed offshore to cover this. Even a minor default could trigger cross-default clauses of around $1.2 billion in senior notes, Fitch Ratings estimated, potentially infecting the company’s onshore debt too.

Wanda now proposes to pay off the $1.7 billion in three installments ending in May 2018. The announced equity sale, via a unit fully owned by Wang, provides a channel for the founder to inject $470 million into Wanda’s offshore unit. That creates breathing space. Regulators have allowed the company to issue another offshore bond, which will buy more room.

Yet it is not out of the woods. Wanda Commercial Properties’ application to go public on the mainland remains in the queue. If it cannot list by next year, Wang – who has been notably quiet of late - will have to pay co-investors up to 12 percent annual interest. The company dismissed a media report that it was selling five offshore assets to a buyer for $5 billion, but coy language in its denial suggested it is open to unsolicited bids, and wisely so.

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