Wanda Deal Leaves JPMorgan And Nomura With Opposite Bond Calls

(Bloomberg) -- China’s biggest real-estate transaction involving three of the nation’s top developers has ignited wild swings in their dollar-denominated bond prices this month. It has also evoked a diverging response from credit analysts.

JPMorgan Chase & Co. turned overweight on Wanda Properties International Co.’s 2024 bonds, while retaining an overweight call on the 2018 bonds on attractive valuations, according to a July 20 report. On the same day, Nomura Holdings Inc. put out a note to say it has a “slight underweight” on both securities to reflect a “potential tail risk from parent.”

The bond calls that put JPMorgan and Nomura at odds with each other come amid reports that the government is checking on Dalian Wanda Group Co.’s global acquisition spree and limiting funding for some deals. Wanda Properties’ notes have slumped as much as 5 percent in the past two weeks. 

Dalian Wanda agreed on July 19 to sell a 91 percent stake in a collection of cultural and tourism projects across the nation to Sunac China Holdings Ltd. for 43.8 billion yuan ($6.5 billion). Guangzhou R&F Properties Co. separately agreed to pick up a bunch of city hotels from Wanda for 19.9 billion yuan-- assets that originally were to be sold to Sunac when the deal was first announced on July 10.

Here are the reasons for JPM’s overweight recommendation:

• Recent news about the Dalian Wanda group has put pressure on the 2018 and 2024 notes; the recent drop means these double-B rated bonds are priced at levels associated with notes from single-B credits Chinese developers
• The notes are attractive given Wanda’s adequate liquidity with cash amounting to about 40 percent of total debt; its better-than-peer gross leverage at 5 times can only improve with proceeds from asset sales
• In worst-case scenario, assuming the deal with Sunac and Guangzhou R&F falls through and its planned IPO does not happen, the group still has liquidity to repay the 2018 notes, JPMorgan estimates.

Here are reasons for Nomura’s underweight recommendation:

• Nomura remains concerned about Dalian Wanda group’s liquidity situation, given its aggressive acquisitions overseas and reports suggesting scrutiny from state and onshore bank lenders
• The private status of Dalian Wanda Group and Dalian Wanda Commercial Properties raises concerns on disclosure, corporate governance and potential cash leakage, credit desk analyst Tony Chen wrote in the note.

To contact the reporters on this story: David Yong in Singapore at dyong@bloomberg.net, Lianting Tu in Hong Kong at ltu4@bloomberg.net.

To contact the editors responsible for this story: Neha D'silva at ndsilva1@bloomberg.net, Chan Tien Hin, Paul Panckhurst