The sun seems to be setting on Wang Jianlin’s dream of making the Wanda Group a global entertainment brand now that the property developer-cum-conglomerate has given up entirely on its Chinese theme park business.
In late October, and only a month after it had reduced its ownership of AMC Entertainment Holdings, the world’s biggest cinema chain, Wanda sold off the branding rights and remaining ownership of its Wanda Culture Travel Innovation subsidiary.
The sale was an embarrassing comedown for Wang, formerly China’s richest man. In 2013, the groundbreaking ceremony at one of its theme parks in China was graced by Hollywood stars and even two years ago, he boasted that he would beat Disney in the booming Chinese theme park market.
“After a high-profile spending spree on foreign assets, Wanda is one of a small group of [Chinese] conglomerates under extreme pressure – both politically and, due to high leverage, financially,” said Yulingbo Mao, greater China head of Argo Associates, a Hong Kong risk consultancy.
In a Rmb6.28 billion ($900 million) deal on October 29, China Sunac Holdings, a Hong Kong-listed property firm, gained full branding rights to the theme parks previously owned by Wanda.
The deal will enable Sunac to dispense with the Wanda name if it so chooses and frees Sunac from the payment of Rmb13 billion brand licensing fees to Wanda.
The fact that Wanda is willing to relinquish that payment suggests it is under pressure to sell. After all, it was only on October 17 that Wanda released a statement dismissing reports that Sunac was poised for a full take over of Wanda Culture Travel Innovation as “inconsistent with the facts”. Wanda also asserted at the time that the theme park business would “continue to be an important group of Wanda.”
“Wanda’s forfeiture of branding fees may reflect its lack of negotiating power in the deal, but may also be due to its strategy of moving out of the tourism and entertainment sectors. Acquisitions in this sector have been specifically singled out for criticism by the Chinese government,” said Mao.
Since the Chinese government imposed restrictions last year on "irrational" overseas investments by acquisitive local companies - not just Wanda but also Anbang Group and HNA Group - the Beijing-headquartered firm has been selling billions of dollars of assets at home and abroad. Forming part of Beijing's broader deleveraging drive, Wanda has found itself caught up in a funding squeeze.
Last year, Wanda canceled plans to acquire Nine Elms Square, a 10-acre plot of land in south-west London; and it withdrew its bid to develop the 197-hectare property portion of the Bandar Malaysia project in Malaysia.
“The Chinese government's clampdown on M&A activity by Chinese state-owned and private corporations is mainly about concerns over debt levels and currency controls,” said Brendan McGloin, director of the Hong Kong office of Risk Advisory Group, another risk consultancy.
Not only is Sunac acquiring 100% of Wanda Culture Travel Innovation Group, it is also taking over Wanda's subsidiary Chengdu Wanda Theme Cultural and Tourism Management.
That follows an earlier deal between the two Chinese companies in July last year, when Wanda sold Sunac a 91% stake in 13 theme parks along with 76 hotels, for Rmb63 billion. The 2017 deal included the $6 billion Harbin Wanda City resort, which features the world’s biggest indoor ski slope.
The 2017 agreement allowed Wanda to retain branding and management of these theme parks, but, crucially, that has now been scrapped under the latest deal.
Given his 75% personal stake in Wanda Theme Cultural and Tourism Management, the new deal also sees Wang lose a substantial chunk of his personal assets. The founding chairman of Wanda, Wang was ranked China’s richest man in 2016 by Forbes magazine but has since slipped to fourth place.
Wanda’s flip-flop also raises the question of whether it will end up selling Legendary Entertainment, one of the largest independent film companies in Hollywood. It acquired a majority stake in the company for $3.5 billion in January 2016. At the end of October, it denied that it was considering such a sale, but it is worth mentioning that the group again used the phrase "inconsistent with the facts".
“We can only speculate on why the company changed its mind, but the sale is consistent with an overall strategy of moving out of the theme park and entertainment sectors; the same rationale may lead Wanda to sell Legendary Entertainment,” said Mao.
Calls and emails to Wanda's offices in Beijing and Hong Kong went unanswered, and Sunac did not respond to FinanceAsia’s questions.
WOLF PACKED OFF
“One tiger is no match for a pack of wolves,” Wang Jianlin said in 2016, referring to Disney’s singular presence in Shanghai compared with Wanda's numerous Chinese theme parks.
Wanda this September hs also reduced its holdings in AMC Entertainment Holdings, which operates the world’s biggest cinema chain. In September, New York-listed AMC sold $600 million of convertible bonds to US private equity firm Silver Lake. If these convertible bonds are fully exercised, Wanda’s stake in AMC will fall from 50% to 38%.
And that's after it sold its 17% stake in Atlético Madrid football club in February for a reported €50 million ($57 million), although it did retain branding rights over its Wanda Metropolitano home ground.
Not only has Wanda’s brand been diminished, the reputation of its chairman has lost some of its shine too. Wang may still be one of China’s richest men, but his name was conspicuously absent from a list of outstanding Chinese private entrepreneurs released on October 24 by the All-China Federation of Industry and Commerce, a Chinese government-led chamber of commerce.
The list is intended to “publicize the great achievements... of private entrepreneurs as part of socialism with Chinese characteristics,” the organisation said.
However, Wanda’s entertainment business perhaps has not totally eclipsed.
On November 8, the company signed an agreement with the municipal government of Lanzhou, the capital of Gansu province, where both sides will jointly build a cultural tourism complex, Wanda announced on the same day. The 1,300 mu (87 hectare) complex, called Lanzhou Wanda city, will include a shopping mall, hotel, bars and a snow entertainment park. Construction is scheduled to begin next year, and the complex is due to open in 2021. Wanda said the total investment in this project is Rmb30 billion but did not give details of how it will be financed.
“It seems strange that Wanda should be developing the Lanzhou Tourism City project so soon after apparently exiting the tourism business. Wanda had stated that future projects would use an “asset light” model. It is possible that a financial backer is being lined up for this project, but this has not yet been announced,” Mao commented.