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Wanda’s Disney Dreams Are Frozen as It Retreats From Theme Parks
The $9.28 billion deal marks a turnabout for Wang Jianlin, who had declared his theme parks would outperform Shanghai Disneyland
By Wayne Ma and Dominique Fong in Beijing and Anjani Trivedi in Hong Kong
Updated July 10, 2017 8:20 a.m. ET
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BEIJING—Dalian Wanda Group, the giant Chinese property developer and entertainment company, is selling off most of its theme parks and hotels in a deal that would pare down a heavy debt load that has drawn attention from regulators.
The $9.28 billion sale to Sunac China Holdings Ltd. 1918 -6.92% comes after China’s banking regulator last month asked lenders to review loans made to big overseas deal makers, including Wanda, to assess whether their escalating debt posed a credit risk.
The deal marks an abrupt retreat for Wang Jianlin, the Chinese billionaire who founded Dalian Wanda. Just a year ago, Mr. Wang described his burgeoning chain of theme parks as a “pack of wolves” that would encircle and overpower Walt Disney Co.’s $5.5 billion Shanghai Disneyland.
Analysts say the turnabout reflects the need for Wanda to cut its debt, which could improve the chances of relisting its main property subsidiary, Dalian Wanda Commercial Properties Co., on a Chinese stock exchange.
“If we assume Wanda will use the proceeds to repay debt, their overall leverage will certainly come down,” said Kaven Tsang, a senior analyst at Moody’s in Hong Kong.
Wanda paid shareholders $4.4 billion last year to delist the company from the Hong Kong stock exchange with the aim of relisting it in China at a higher valuation. Wanda has sought to relist the property unit but has yet to receive approval.
Wanda declined to comment Monday. In an interview with Chinese financial magazine Caixin, Mr. Wang said Wanda would use the sale to “substantially reduce” the debt of Wanda Commercial Properties, adding that it would repay an “overwhelming majority” of its bank loans this year.
Wanda’s property unit accounted for about 55% of its almost $20 billion revenue in the first half of 2017. However, the unit was saddled with about $33 billion debt as of 2016, up 20% from the previous year, according to regulatory filings.
Wanda has borrowed heavily to build apartments, malls and hotels. Earlier this year, Moody’s Investors Service downgraded the company’s commercial-property units to just above junk status, noting rising leverage as Wanda attempts to build and sell more malls.
The ratings firm said in January that it expects the property unit to raise about $5 billion in additional debt for planned projects within two years. The property unit’s debt levels put a commonly used measure of leverage—net debt to equity—at 56%, which is above its peers.
Wanda started off as a property developer in the late 1980s but moved aggressively in recent years into entertainment, adding more debt to its books.
The company acquired AMC Entertainment Holdings Inc. for $2.6 billion in 2012. Last year, Wanda spent $3.5 billion for Hollywood production and finance company Legendary Entertainment.
More recently, Wanda’s $1 billion deal to buy Golden Globes producer Dick Clark Productions fell apart amid heightened Chinese government scrutiny over capital outflows.
In theme parks, the “wolf pack” has yet to show much bite. The Wanda Movie Park in Wuhan closed for retooling less than two years after opening, and the park in Nanchang reported attendance of about 1.3 million in its first seven months, far off the 11 million pace set by Shanghai Disneyland in its first year.
Wanda is a private company and not much is known about its overall debt. However, regulatory filings for its property unit reveal that the parent’s consolidated liabilities, which include debt, totaled more than $100 billion at the end of last year.
Wanda’s debt also includes $4.75 billion in syndicated loans, which are made by groups of banks to corporate borrowers, and about $18 billion in bonds through subsidiaries that include Legendary, AMC and its property unit, according to data provider Dealogic.
Under the deal announced Monday, Wanda said it would sell a 91% stake in 13 of its current and planned tourist attractions and 72 of its 102 hotels in China to Sunac. Along with parks in Nanchang, Hefei and Harbin, there are at least nine other planned parks and tourist attractions.
Wanda has been selling assets, such as its malls, in recent years, adopting an “asset-light” model that would allow it to earn income from managing the assets instead of owning them. Although Sunac is buying the hotels and theme parks, Wanda said it would still manage them under its brand.
Some analysts say hotels and theme parks don’t have much synergy with Sunac’s primary business of luxury apartments.
“It doesn’t make sense to me,” said Chuanyi Zhou, a credit analyst at Lucror Analytics. “It’s quite a risky move.”
Under the terms of the deal, Sunac will likely pay Wanda a fee to manage its hotels and theme parks—which could put a dent in Sunac’s future cash flow and tighten its operations, Ms. Zhou said.
Sunac Chairman Sun Hongbin told Caixin that the developer would only use existing capital, not debt, to finance the acquisition. He didn’t reply to requests for comment.
—Grace Zhu and Lilian Lin in Beijing contributed to this article.
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