Taking advantage of the Chinese government’s more liberal approach towards private financing, a Wanda Group unit issued its first offshore bond since July 2016, which was lapped up by investors.
Since 2016, the Chinese government has tightened restrictions on the expensive overseas acquisitions of large private Chinese firms like Wanda and HNA Group. It was alarmed by soaring corporate debt and the potential flight of capital. But with more recent concerns over financial difficulties in the private sector, Chinese authorities have switched course and allowed companies to pursue offshore funding.
The Reg S offshore US dollar bond from Wanda Properties Global, a property subsidiary of Wanda, printed on Monday. The order book for the $300 million deal which eventually priced at 6.25%, hit more than $1.3 billion from 56 accounts according to Li Chao, head of fixed income at sole global coordinator, lead manager and bookrunner China Citic Bank International. Pricing came in 25bp during bookbuilding.
The bond's tenor was 363 days. Chinese issuers do not require approval from the National Development and Reform Commission, better known as the NDRC, to issue offshore bonds of tenor shorter than 365 days.
Funds accounted for 69% of the book, banks accounted for 18%, private banks 8% and the remaining 5% came from corporates and other financial institutions, according to the bookrunner.
Proceeds will be used to refinance debt and for general working capital.
In Tuesday's morning session in the first day of trading, the notes traded up to 100.3/100.4 in the secondary market. On Wednesday morning, the bid price of the bond came down to 100.043/100.286 and was yielding 6.24%/5.934%.
Another property subsidiary of Wanda, Wanda Properties International, tapped the offshore markets in January 2014 with a $600 million 10-year bond yielding 7.25%. On Wednesday, this bond had a bid price of 98.750 and asking price of 99.625 and was yielding 7.514%.
“The relaxing of financial pressure on Wanda as represented by this dollar bond is more about an overall loosening with regard to debt issuance and overseas transactions, rather than a suggestion that Wanda’s relationship with the central government has significantly changed,” said Yulingbo Mao, greater China head of Argo Associates, a Hong Kong risk consultancy.
The China Banking and Insurance Regulatory Commission (CBIRC), in a document published on its website on February 25, demanded increased financial support for private firms, with speedier loans for small and medium enterprises (SMEs). Large state-owned banks should see their loans to SMEs grow by at least 30% this year, it said.
At a press conference at the start of the week, CBIRC vice chairman Wang Zhaoxing announced that China’s deleveraging campaign has met its targets, signalling that the financing taps for companies can be opened even more. Wang said that much of the deleveraging campaign will now wind down, though he emphasized that certain sectors - like property - still contain risky debt and that the anti-corruption crackdown on the debt markets will continue.
The Chinese government has loosened borrowing constraints but does not want a repeat of the over-aggressive and highly leveraged overseas expansion of Chinese firms.
After a $20 billion shopping spree in China and abroad, Wanda has sold over $9 billion of assets since 2017. That was when the Chinese authorities pressurized private Chinese firms like Wanda and Anbang Group to reduce their huge debt.
Wanda’s total assets fell 11.5% to Rmb625.7 billion ($93.5 billion) last year, and revenue declined by 5.7% to Rmb214.3 billion in 2018.
Wanda continues to shed assets. In October last year, Wanda reduced its stake in AMC Entertainment Holdings, the world’s largest cinema chain, and sold off its branding rights and its remaining ownership of its theme park subsidiary, Wanda Culture Travel Innovation. This was an embarrassing comedown for the group's founder Wang Jianlin, who was Asia’s richest man in 2015.
In mid-February, Chinese retailer Suning Holdings announced that it would acquire 37 department stores from Wanda.
Wanda also sold four overseas real estate projects last year for $1.8 billion. It is unlikely that Wanda will make any large overseas investments in the near future. “However, the Chinese government is allowing groups to borrow more, so we can’t rule out new overseas investments,” said Argo Associates' Mao.
Wang has said that his company’s interest-bearing debt should be reduced to 10% this year. And by the end of 2020 it will be reduced to “absolutely safe levels”, he declared.
Wanda did reduce its interest-bearing debt by 30% last year. The conglomerate’s overseas liabilities have been “basically resolved, at present, there are only a few loans that have not reached maturity,” Wang added. “The company’s receivables and cash deposits overseas are bigger than its liabilities – it’s a slap in the face for people who are saying that Wanda will default.”
A guarantor of this bond is another Wanda subsidiary, Wanda Commercial Properties (Hong Kong), which has a credit rating of BB- by S&P Global and Ba3 by Moody's.
