BEIJING, November 27 (TMTPOST) – Wanda Group has recently issued an announcement, saying that due to the downturn in the real estate industry and the rising interest rates in the overseas capital market, the company faces difficulties in refinancing.

There is also uncertainty about the approval of the listing of its subsidiary, Zhuhai Wanda Commercial Management Group, by the end of the year. To alleviate the company's short-term liquidity pressure, it was forced to adjust the repayment plan for the bonds due in January 2024.

In plain language: Wanda Group is short of money, and a $600 million US$ bond needs an extension. Consequently, the prices of group’s USD bonds fell sharply, marking the largest decline since July, and other real estate USD bonds were trapped in the same mire.

Compared to the extension of its USD bonds, the news about Zhuhai Wanda Group's listing is a bombshell. This implies that Wanda will have to come up with over 30 billion yuan to buy back the shares of the subsidiary.

The current tough situation is not new to Wang Jianlin, the chairman, founder, and majority shareholder of Wanda Group. In early 2018, the group's A-share listing failed, and Wang had to scramble for funds to finance the privatization of its H-shares. Eventually, some entrepreneurs came to the rescue, injecting 34 billion yuan to take over the equity held by the delisting consortium, helping Wang weather the storm.

With a cash shortage, can Wanda Group navigate through the mire this time?

Impulsive Delisting Decision

Wanda Group, which is now desperately seeking a listing in Hong Kong, had actually been listed on the Hong Kong Stock Exchange nine years ago.

At the end of 2014, Wanda Commercial Properties Co., Ltd. (03699.HK) went public in Hong Kong at an issue price of HKD 48. Riding the bull market of A-shares and H-shares, Wanda Commercial’s stock price reached HKD 78 in June 2015.

At that time, a vice president of Wanda Group calculated the market value of his holdings while telling friends, "You won't see the stock price over HKD 70 again." With the market turning bearish, Wanda Commercial's stock price did reverse, plunging to HKD 31.1 in February 2016.

At that time, the valuation of real estate stocks in Hong Kong was generally not high. However, what many Wanda employees could not understand was the stark difference in the valuation given to Wanda's assets by A-shares and H-shares

In January 2015, Wanda Film, formerly Wanda Cinemas, went public on the Shenzhen SME board. In the bull market in the first half of 2015, with a net profit of less than 1 billion yuan, Wanda Cinemas reached a market value of over a hundred billion yuan, with a P/E ratio exceeding 100; whereas Wanda Commercial, with a net profit of over 20 billion yuan, had a market value of less than 200 billion yuan, and its P/E ratio was less than 4 at its lowest.

This left Wanda employees dumbfounded. In their view, if a Wanda cinema earns 10 million yuan a year, then a Wanda Plaza is expected to earn 100 million yuan a year. If Wanda Cinemas is worth 100 billion yuan, shouldn't Wanda Commercial be worth at least a trillion yuan?

Wang couldn't understand either. At that time, he was topping various rich lists, and he couldn't accept the "insulting pricing" given to Wanda Commercial by the Hong Kong stock market. He felt that he owed his old friends. As everyone knows, listing is an excellent opportunity for major shareholders to repay their friends, and Wang has always been generous in his social circle, known as the "big brother."

Later, in a dialogue with reporters, Wang touched on the low H-share issue price. He said: "I have been involved in many industries, made many investments, and many friends followed me in each investment. Every time, we were happy with the profits, except for this one – my friends lost money. This is a crucial point; I cannot let down my friends and shareholders."

Thus Wang decided to delist Wanda Commercial from Hong Kong and hoped to return to A-share listing with a high issue price. Looking back, this decision was not without impulse. Returning to A-shares and staying in H-shares were not inherently contradictory.

Real estate companies have always been strictly controlled for A-share listings but not prohibited.

In July 2015, Wanda Group established a financial group in Shanghai, recruiting former Deputy General Manager of the Shenzhen Stock Exchange, Lu Xiaoma, as the Vice President and CEO of the investment company of Wanda Financial Group. Besides investment, the group placed high hopes on Lu's role in the A-share listing.

In November 2015, Wanda Commercial issued a prospectus for the A-share listing. In March 2016, it initiated the privatization of H-shares. Subsequently, it launched a tender offer to buy back H-shares at no less than HKD 48 per share, completing the delisting from the Hong Kong Stock Exchange in September 2016.

The funds needed for privatization came from Wanda Commercial's financing. Wanda Group signed a performance-based agreement with nine consortia, promising to complete the A-share listing by 2018; otherwise, it would buy back the equity of nearly 30 billion yuan from the consortia.

The road to A-share listing was much more difficult than Wang had anticipated. On November 21, 2016, Beijing Soft Rock Investment Group Corporation (000609.SZ, now Beijing Zodi Investment Co., Ltd), which Wanda had once considered for a backdoor listing, announced the termination of the significant asset restructuring involving Wanda Commercial.

This was probably the last attempt for Wanda Group's A-share listing. On December 5, 2016, Lu resigned.

Since the end of 2016, the once bearish Hong Kong real estate sector has seen a significant rise. Evergrande and Sunac recorded tenfold increases, and Hui Ka Yan and Yang Guoqiang successively took the throne as the richest individuals.

Wang, who missed the bull market in Hong Kong real estate stocks, gradually distanced himself from the title of the richest. Adding to the misfortune, in June 2017, Wanda Group faced a crisis due to a notice from the China’s Banking Regulatory Commission investigating loans.

In the midst of the crisis, Wang acted decisively, selling off 13 Wanda Plazas and 77 high-star hotels, quickly cashing in over 60 billion yuan. Other high-quality business and cultural assets were also transferred.

Despite the decision-making mistakes in the Hong Kong delisting, Wang's courage and execution in the face of difficulties were still unmatched by other real estate moguls. In the subsequent wave of real estate defaults, no one could replicate Wang's survival tactic of selling assets.

Repeated Failures Faced by Wanda Group

Although Wanda Group survived the crisis, it lost in the bet around the A-share listing. Wang mobilized a powerful social circle, using a new round of wagering to fill the gap.

In 2018, Tencent, Suning, JD.com, and Sunac signed investment agreements with Wanda Group, acquiring the equity from the delisting consortium for 34 billion yuan.

Seeing no hope for returning to A-share listing, Wang decided to restart the Hong Kong listing. To cater to the preferences of the Hong Kong capital market, Wanda Group conducted asset separation, leaving heavy assets in the group and transferring property management and facility management to Zhuhai Wanda Group, in order to list the subsidiary in Hong Kong.

During the 2021 separation, Wanda Group introduced new investors, including Alibaba’s founder Jack Ma, Tencent’s founder Pony Ma, and state-owned enterprises such as CITIC. This time they also signed a performance-based agreement, with an amount of 30 billion yuan. If Zhuhai Wanda Group fails to list in Hong Kong by the end of 2023, Wanda Group is obliged to repurchase the shares.

This bet also includes performance commitments. Zhuhai Wanda Group promises that the actual net profit from 2021 to 2023 will not be less than 5.19 billion yuan, 7.43 billion yuan, and 9.46 billion yuan, respectively.

Subsequently, Zhuhai Wanda Group submitted listing applications to the Hong Kong Stock Exchange three times in October 2021, April 2022, and October 2022, all to no vail.

On June 2, 2023, the CSRC explicitly required Zhuhai Wanda Group to supplement the materials for overseas issuance and listing, raising six questions involving corporate internal control, corporate governance, related-party transactions, and questioning the reasonableness of large dividends while simultaneously raising substantial funds. It also demanded an explanation for issues such as the substantial increase in profits. Considering the impact of the 2022 pandemic and the downturn in real estate, the decision by the regulator delivered a body blow.

Wanda Group faced the challenge head-on. On June 28, 2023, Zhuhai Wanda Group submitted its fourth IPO prospectus to the Hong Kong Stock Exchange. However, whether it was due to the supplementary materials being insufficient to convince the CSRC or other reasons, the listing was still shelved.

Wanda Group's situation now is somewhat similar to the end of 2017: suspicion from the regulator, a liquidity crunch, and an urgent need to sell assets. Although the group has not conducted a "clearance sale" in the latter half of this year, it has been discreetly selling off assets.

As the year-end approaches, with the dream of listing shattered and another failed listing attempt, Wang is still striving. According to informed sources, Wanda Group wants to postpone the payment of the equity repurchase and interest but has not yet obtained the agreement of investors.

As one of China's most outstanding entrepreneurs, can Wang turn the tide this time?

(This article was originally published on the TMTPOST App. Author: Hu Runfeng)