China's Richest Man Sells Off Hotels and Theme Parks

 | Jul 11, 2017 | 9:00 AM EDT
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The conglomerate run by China's richest man is offloading a hefty chunk of its assets to pay down debt. The move suggests a switch to an asset-light mode -- virtually unprecedented in China -- as well as preparation for a possible stock listing.

Dalian Wanda will sell 76 hotels and a 91% stake in its 13 theme parks to Sunac China, which has itself been on an acquisition spree. 

Sunac Real Estate Group will pay 33.6 billion yuan ($4.94 billion) to buy the hotels outright, while parent Sunac China will spend 29.6 billion ($4.35 billion) on the theme-park stake.

The companies plan to sign the final agreement over the sales by the end of July, with payment and the transfer of holdings happening "as soon as possible," Dalian Wanda outlined in a statement on its Web site. Sunac and Wanda now plan to cooperate extensively, including on movies.

The shares of Wanda's listed subsidiary Wanda Hotel Development HK:0169 more than doubled, up 105% after news of the Sunac deal, although its hotels are not involved in the transaction.

Dalian's founder Wang Jianlin is the richest man in China, with a 215 billion yuan ($31.6 billion) fortune, according to the Hurun Report's "rich list."

If it does indeed represent a switch from the traditional approach to building a business empire in China, this sale is unusual. Selling off a money-sucking section of the business that leaves you with depreciating, hard-to-maintain assets may signal more joined-up thinking, which would make Wanda more appealing to international investors.

"This signifies a retreat from Wanda's previous strategy in cultural tourism, and marks a pivot to an asset-light strategy," Qin Gang, senior researcher at the government think tank the State Information Center, told Reuters. It would be the second-biggest real-estate deal in Chinese history, according to the wire service.

Chinese companies tend to grow haphazardly, apparently based on the whims of the founding tycoon rather than any coherent business strategy. That leaves them holding a wide array of businesses in totally unconnected industries. It's hard to imagine how a single company can possibly manage them efficiently.

For instance, Fosun, which has listed Fosun International (FOSUY) offshore in Hong Kong FOSUY, is like Wanda a sprawling Chinese conglomerate. It has subsidiaries that operate in pharmaceuticals, finance, mining, hospitals, tourism in the form of Club Med, British football in the form of the club Wolverhampton Wanderers, halal-certified coffeehouses, and the high-end U.S. women's knitwear clothing maker St. John Knits. 

Theme parks are of course highly capital-intensive. Although Beijing has been encouraging their development and pushing for a stronger domestic tourism industry, there are already around 300 completed theme parks in operation, some good and many terrible, but all struggling to turn a profit.

Offloading the stake in 13 "cultural tourism" parks that include theme parks and leisure complexes will allow Wanda to concentrate capital in other areas while keeping a hand in the business. Wanda was planning another 20 such projects in China, forming what Wang said would be a "wolf pack" to hound out Walt Disney (DIS) .

The theme parks will keep using the "Wanda Cultural Tourism City" brand, and Wanda will continue to develop and manage the operations of the parks. Wanda had previously touted that the "cultural industry will become an increasingly important part of Wanda," with revenue of that portion of the business forecast to rise to 150 billion yuan by 2020, triple the 51.3 billion yuan produced in 2015.

Wang was in May briefly surpassed by Alibaba (BABA) founder Jack Ma's $31 billion stash on the Forbes China Rich List. But Wang, at $33 billion, is now once again atop the ranking thanks to the fallout from the recent selloff in FANG stocks, with Ma's fortune falling to "only" $28 billion.

It's a lot of money, either way you look at it. Wang, now 62, has a dotted resume, like most Chinese tycoons of his era. He spent time in the Chinese military, as is common for the first generation of Chinese entrepreneurs, then made his first fortune in property development.

Dalian Wanda Commercial Property remains China's largest developer of commercial real estate. It delisted in Hong Kong last September, with the potential to re-list in Shanghai.

But Wang may be holding out for a foreign listing of all Dalian Wanda's assets. Dalian Wanda continues to prepare statements and outline its sprawling operations on its Web site in English, highly unusual for Chinese companies.

It proudly notes that it is, as of July 2016, among the ranks of the Fortune Global 500. Inclusion recognizes its transition "from a Chinese real estate company to a global sports, entertainment and tourism giant," Wanda said at the time.

It does not, however, provide regular financial data on its operations on its Web site. Forbes says its 128,518 employees produce profits of $2.4 billion on $27.4 billion in revenue, ranking it No. 385 among the world's largest companies. The company says overseas operations made up 14.8% of revenue at last count, but is due to rise to 30% of total business by 2020.

Wanda appears to be shifting away from domestic entertainment and tourism and focusing its efforts on international expansion.

Wanda in 2012 spent $2.6 billion to buy the cinema chain AMC Entertainment Holdings, late last year becoming the world's largest movie-theater operator with the purchase of Europe's biggest theater chain, Odeon & UCI Cinemas, for a reported $1.2 billion.

The company acquired Legendary Entertainment, producer of the Hangover movies and Jurassic World, for $3.5 billion, then spent $51 million on a 20% holding in the Spanish soccer club Atlético Madrid. It also owns the Ironman brand of triathlons and the British luxury-yacht maker Sunseeker.

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