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Dalian Wanda Group confirmed a 34 billion yuan (5.4 billion US dollars) deal on Monday, that brings together some of China’s biggest companies and continues a trend of closer integration between e-commerce and bricks-and-mortar retail.
The Wanda Group operates 235 Wanda Plazas, which received 3.19 billion visitors in 2017.
The deal sees a 14 percent stake in Dalian Wanda Commercial Property go to tech giant Tencent, e-commerce titans JD.com and Suning, and property developer Sunac.
The deal, which has led to the company being renamed Dalian Wanda Commercial Property Management, eases some pressure on the indebted Wanda Group. The conglomerate called it a strategic shift away from property development to a “pure commercial management” company.
Here are five points to take away from the deal.
Wanda’s retreat from the limelight
In 2016, Wanda founder Wang Jianlin was China’s richest man. He vowed to take on Disney and spearhead Chinese investments overseas, buying stakes in luxury property, high-end yacht manufacturers, and, most memorably, Hollywood. A deal worth 3.5 billion US dollars for Legendary Entertainment was seen as the moment Chinese mega-investment had arrived in the West.
Two years on, Wang’s fortune has faded. S+P downgraded Wanda to junk status, as mounting debts and growing unease over the group’s aggressive overseas expansion have seen revenues fall sharply.
The group sold 9.4 billion US dollars’ worth of hotels and entertainment complexes to Sunac and R+F Properties in 2017, a year that saw revenue for the property arm fall by 23.7 percent.
On January 20, Wang promised that Wanda would focus on clearing “all overseas debt.” The retreat in ambition was confirmed with Wang’s announcement that the only expansion this year would be in Wanda Plazas, the group’s range of domestic shopping malls.
This expansion would be funded by the group’s “limited cash,” with funding choked by a reported 2.1 billion US dollars’ worth of loan repayments due this year.
Tech, e-commerce titans now call the shots
Tencent, which reached a market cap of 500 billion US dollars in November, is arguably the new Wanda. Its purchase last week of a 10 percent stake in Skydance Media, the Hollywood studio behind Mission Impossible and Star Trek, mirrors the Wanda-Legendary Entertainment deal, and shows how much the tables have turned in the last two years.
Ma Huateng, also known as Pony Ma, is China's second richest man, with a wealth of 37 billion US dollars.
The Internet sector has grown so rapidly in China, that tech and e-commerce entrepreneurs now hold more sway than property moguls like Wang Jianlin, pouring cash into ofo, Mobike and other up and coming tech startups.
E-commerce merger with bricks-and-mortar retail gathers pace
This deal features three big players in Chinese e-commerce – JD.com, Tencent and Suning (20 percent of which is owned by Alibaba).
Jack Ma has been the most vocal tech player when it comes to transforming traditional shopping patterns with technology – his so-called “new retail” concept is set to see Alibaba open its first physical mall in Hangzhou in April.
A Jingdong X self-service supermarket opens in Tianjin, northern China, on January 18, 2018.
JD.com is China’s largest retailer and second biggest e-commerce platform, and began cooperating with US supermarket chain Walmart last year. In December it announced plans to open “hundreds” of unmanned stores across the country, a strategy also being pursued by Alibaba, Amazon and Tencent.
Tencent’s first unmanned store opened in Shanghai last week, attracting 30,000 visitors in its first two days. Tencent has also backed French hypermarket chain Carrefour, as more and more tech giants look to integrate e-commerce, mobile payments and AI with grocery shopping.
Restructuring pushes Chinese groups in uncharted waters
Wanda may be looking to paint this deal as a “strategic shift,” but it is by and large part of a massive and complex restructuring process, highlighting the challenges faced by China’s biggest conglomerates under financial pressure.
The 14 percent stake in this deal is actually being purchased from private investors, rather than from Wanda itself. Those investors spent 4.4 billion US dollars on delisting Wanda’s commercial property sector from the Hong Kong stock exchange in 2016.
In return, Wang Jianlin promised to relist on the mainland by September 2018. If Wanda fails to relist by the deadline, it will pay interest of up to 12 percent to those investors.
This latest deal comes days after 81 million US dollars’ worth of luxury property in London, and 913 million US dollars’ worth of property and debt in Australia were sold by Wanda Hotel and Wanda HK, two other struggling subsidiaries of the group.
According to the 2017 Hurun Rich List, Wang Jianlin's wealth dropped 28 percent last year to 23 billion US dollars.
White knight Sunac comes to the rescue… again
Sunac, once a relatively obscure domestic property developer, has garnered a reputation as a white knight for troubled Chinese companies.
It previously spent 43.8 billion yuan (6.48 billion US dollars) on a 91 percent stake in Wanda’s entertainment complexes, and poured cash into troubled LeEco, with Sunac chair Sun Hongbin ousting Jia Yueting as head of Leshi.
Other deals in China’s domestic property sector have seen Sunac buy out assets from smaller, struggling developers, boosting its stock price 10-times-over since 2015.
According to the Hong Kong Economic Journal, the group gained around 1.4 trillion yuan worth of property in 2017, 70 percent of which came through favorable deals and white knight-style acquisitions.
(CGTN)
