Hobbled by Virus, China’s Wanda Faces $5.7 Billion Debt Bill

(Bloomberg) -- Dalian Wanda Group Co., the Chinese conglomerate that borrowed billions of dollars to fund an acquisition binge, is facing a double whammy this year: a wall of maturing debt and a deadly virus that has hampered its operations.

The empire founded by billionaire Wang Jianlin, who once aspired to beat Walt Disney Co. in entertainment, needs to refinance or pay about 39.8 billion yuan ($5.7 billion) of its bonds this year. That is almost 36% of its total outstanding notes, the highest proportion of total bonds due among the nation’s top 25 firms, according to data compiled by Bloomberg.

The payment pressure comes at a time when the outbreak of the new coronavirus, which has killed more than 3,100 people, is striking at the heart of the group’s businesses by deterring shopping and travel. The company has shut down malls, theme parks and cinemas to comply with epidemic-control measures, and is waiving or delaying rents for tenants.

Wanda is among the last few of China’s acquisitive non-state groups that have pared holdings over the past few years after snapping up assets from Hollywood studios, hotels, Manhattan buildings to European football clubs. Last week, the government started taking charge of debt-laden HNA Group Co. after the contagion hurt the once-acquisitive firm’s ability to meet financial obligations.

“Wanda’s 2020 outlook wasn’t great before the coronavirus outbreak devastated the company’s core markets, and the company will almost certainly require refinancing as the year progresses,” said Brock Silvers, managing director at Adamas Asset Management in Hong Kong.

While this may cause some tumult within the group, tycoon Wang may manage to avert any potential crisis with refinancing options, Silvers added. Still, the looming debt bill underscores the challenges many of China’s businesses are confronting as the $14 trillion economy sputters. For Wanda, the timing couldn’t be worse.

Dalian Wanda Commercial Management Group Co. had a total debt of 333 billion yuan as of Sept. 30, more than twice its liquid assets, according to data provided by the firm. Fitch Ratings says the company accounted for about 80% of the conglomerate’s earnings before interest, taxes, depreciation, and amortization in the first half of 2019. Revenue at the operator of malls dropped 32% in the first nine months of last year, while net income fell 26%.

A representative for Wanda didn’t respond to requests for comments on the payments due or the impact of the virus outbreak on the company’s finances.

Bloomberg-compiled data show these notes coming due this year:

Eight bonds issued by Wanda’s subsidiaries are due this year. A majority of them were issued by Wanda Commercial Management. A 1.8 billion yuan bond issued by Beijing Wanda Cultural Industry Group Co. is also due March. That firm contributed to 20% of the group’s Ebitda, operating Wanda’s sports and entertainment assets.

With over a third of the combined value of its notes maturing in 2020, Wanda has the highest proportion of bonds due among some of the country’s top performing companies. That’s based on Bloomberg-compiled data available for 16 firms with over 2 billion yuan in bonds on a list of the top 25 firms selected by All-China Federation of Industry and Commerce.

Atletico Madrid

Like HNA and Anbang Insurance Group Co., Wanda’s debt piled up as it set about buying a stake in Spanish football club Atletico Madrid, properties in Beverly Hills, American theater chain AMC Entertainment Holdings Inc. and Hollywood studio Legendary Entertainment LLC in a debt-fueled binge between 2012 and 2016. When authorities in Beijing cracked down on capital outflows, Wanda ended up selling some, including its real estate projects in London and Australia.

Wanda Sports Group Co., part of the Dalian Wanda conglomerate, said last month that it’s engaging in preliminary discussions on a potential sale of its Ironman triathlon business. Dalian Wanda bought the business for $650 million in 2015.

As the fallout from the health crisis spreads to companies, China’s financial regulators have told lenders not to downgrade loans with missed payments or report delinquencies before the end of June.

China is estimated to have lost about 1 trillion yuan from box office, food and drinks, retail and tourism sectors during the seven-day Lunar New Year holidays, equivalent to 4.6% of the first-quarter GDP last year, according to a report by Evergrande Research Institute last month. Cinema halls have been shut since late January, meaning those losses are mounting.

The rental waivers are estimated to cost Wanda Commercial 3 billion yuan, equivalent to about 10% of its annual rental income in 2018 and 3% of that year’s total revenue, according to a report by Shanghai-based SWS Research Co. earlier this month.

“If the epidemic extends further, it may affect commercial lease renewal and rent levels,” SWS analyst Meng Xiangjuan wrote in the report. This will have greater impact on companies that rely on rents for a large part of income like Wanda Commercial, Meng said.

Adequate Cash

Wanda Commercial’s cash, at 60 billion yuan as of Sept. 30, is sufficient to cover its short-term debt in the worst case scenario, but it can always secure refinancing, said Chloe He, corporate rating director of Fitch Ratings. The firm can issue new bonds, like what most Chinese real estate companies do to refinance old bonds, He said. It can also seek funds via initial public offerings or selling a package of assets while charging fees to manage those properties, He added.

A $300 million offshore dollar bond issued by Wanda Properties Global Co. which matured February was well covered by two other offshore notes issued by Wanda Properties Overseas Ltd. in November and January totaling $800 million, said Kaven Tsang, a corporate finance senior vice president at Moody’s Investors Service Hong Kong. Both dollar bonds erased losses after dipping during Wednesday trading in Hong Kong, according to Bloomberg-compiled data.

The January dollar note proved popular among investors, attracting over $2 billion in orders for the $400 million offering. Lower borrowing costs partly due to high demand for bonds have seen a flurry of deals even as anxiety over the economic damage of the outbreak mounts: Chinese borrowers have issued a year-to-date-record $54.3 billion of dollar bonds so far this year.

“Financial institutions have been encouraged to support a variety of companies, especially those severely affected during the period,” He of Fitch said. “The impact will surely be negative, but I believe Wanda has sufficient funding channels to weather the headwind.”

--With assistance from Evelyn Yu and Qingqi She.

To contact the reporters on this story: Shirley Zhao in Hong Kong at xzhao306@bloomberg.net;Rebecca Choong Wilkins in Hong Kong at rchoongwilki@bloomberg.net

To contact the editors responsible for this story: Sam Nagarajan at samnagarajan@bloomberg.net, ;Shen Hong at hshen87@bloomberg.net, Richard Frost

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