AMC's Disgraced Chinese Owner Wins Big in the GameStop Frenzy
(Bloomberg Opinion) -- As the world marvels over the epic nerds versus Wall Street battle and GameStop Corp.’s gravity-defying rally, Wang Jianlin, a Chinese billionaire who has practically disappeared from the media limelight, must be feeling vindicated — and grateful to U.S. markets.
This is because the commercial real estate and entertainment tycoon, who as recently as 2016 was China’s richest man, controls AMC Entertainment Holdings Inc., one of the distressed companies that retail investors were betting would become the next GameStop. Wang’s Dalian Wanda Group Co. Ltd. had bought the movie theater chain for $2.6 billion in 2012. As of December 14, 2020, the Chinese conglomerate owned 58.8% of AMC’s voting rights. Until online trading platforms paused the “meme” trade in GameStop and AMC on Thursday morning, the cinema company’s shares have soared over 800% to a $8 billion market cap. On Wednesday alone, its stock price was up more than 300%.
Wang used to be one of China’s most well-connected tycoons. Sensing a secular decline in China’s commercial real estate market and aiming for an “asset-light” approach, he made flashy media and entertainment deals overseas in the five years between 2012 and 2016. Apart from AMC, Wanda acquired World Triathlon Corp. in 2015 for $650 million, and bought control of Legendary Entertainment LLC in 2016 for $3.5 billion.
Wanda was nonetheless caught in Beijing’s corporate deleveraging campaign, which picked up pace in late 2017. Along with other acquisitive conglomerates, such as HNA Group Co. and Anbang Insurance Group, Wanda was placed under Beijing’s magnifying glass. To cut debt, the company had to sell most of its theme parks and hotels to Sunac China Holdings for $9.3 billion, in a deal later rejigged to include Guangzhou R&F Properties Co. It sold a partial stake in AMC to private equity firm Silver Lake in 2018 for $600 million. Wang was offloading assets even faster than his $20 billion-plus shopping spree.
Despite all the efforts, however, China’s capital markets remain largely closed to him. In May 2016, Wang took his Hong Kong-listed commercial real estate arm private, in the hope of re-listing in the mainland, where valuations are higher. But his return home proved painful and unfulfilling. Unlike the U.S., where any company that fulfills required financial disclosures can list, China’s state planners base their approval decisions on opaque qualitative measures, such as whether a company serves the right social purpose.
He had promised to pay his take-private partners more than $5 billion if he could not go public by September 2018. Unable to list, he had to carve out more than 14% of his real estate business for a 34 billion yuan ($5.26 billion) capital injection. Wang’s real estate business is still privately held.
This is in sharp contrast to the kind of capital market access Wang’s AMC had in the U.S., despite its deep financial woes. In the fourth quarter, theater attendance in the U.S. fell about 92%. It had an average cash burn of about $124 million per month, while sitting on only $308 million cash by year-end. AMC even toyed with the idea of a bankruptcy in October.
However, in the December quarter, AMC managed to raise about $263 million. In January, it raised another $806 million through more at-the-market equity sales, a high-yield bond issue, and a new term loan facility through a subsidiary, according to estimates by Goldman Sachs Group. Even in the absence of any increase in attendance, “our existing liquidity would extend our operations through to July 2021,” AMC said in a filing. The financing was not cheap. The $100 million note it recently issued pays 15% cash coupon – or 17% if it’s payment-in-kind. Nevertheless, it helped the cinema operator live another day.
The rollout of an effective vaccine under the new Joe Biden presidency was also a boost, holding out promise of movie-goers eventually returning to theaters. It’s not hard to see why Reddit chat room users got excited. The cinema chain has gone from near bankruptcy to a good play.
Wang can only wish China’s capital markets were this open. He has done quite some restructuring to cater to Beijing regulators’ taste. Last year, he shed the low-margin real estate development business to focus on property management. In August, S&P Global Ratings upgraded that subsidiary to BB+, expecting its profit margin to improve to 60-65% this year, from about 42% in 2019. Beijing is not swayed.
Granted, China’s regulators sometimes do what they do to protect small stockholders in a marketplace known for its frenzy. Retail investors would otherwise get terribly bruised when they offloaded their shares in the Chinese equivalents of GameStop. However, a meddlesome government in the marketplace will only distress already troubled companies — and bankrupt already distressed ones.
And risk and failure are essential part of an open market. What’s the best way to learn how to invest? By being burned a few times. To that point, China’s notorious day traders — their fingers singed — are starting to trust the professionals. The domestic mutual fund industry is seeing a boom.
Wang Jianlin and his flamboyant heir Wang Sicong seem chastened these days. In earlier years, Sicong would be tweeting to his 41 million followers on Weibo, China’s Twitter, about the family’s new-found good fortune. The government said “no” to the dad’s initial public offering plans; and then it forbade the son from partying. But privately, I bet the Wangs are dancing right now.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.
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