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Fosun International Chairman Guo Guangchang poses at its headquarters in Shanghai. (Photo by Gong  Xing)
Business Spotlight

'China's Buffett' refocuses Club Med owner Fosun after overseas deals

Guo Guangchang tries to defy post-pandemic downturn with shift to health

CK TAN, Nikkei staff writer | China

SHANGHAI --- Guo Guangchang, chairman and co-founder of Fosun International, wants to be known for seizing the moment.

In 2007, armed with $1.5 billion raised from the consumer group's listing in Hong Kong, Guo began a quest to globalize Fosun, acquiring a string of overseas assets in the aftermath of the global financial crisis and earning him a label from local media as China's "Warren Buffett."

Now, against the background of another event that is reshaping the business world, Guo is again trying to turn the moment to his advantage. He is reshuffling Fosun's leadership and probing new openings in health and vaccines as he tries to find a new strategy and modus operandi for the once expansive group.

"We cannot continue to open up frontiers," the 53-year-old Guo told the Nikkei Asian Review. "We will continue to strengthen our foothold in the industry and to grow roots and develop after a certain period."

Guo, who owns 60.3% of Fosun, has good reason for trying to rethink and consolidate businesses that sprawl from beer to soccer and employ 71,000 people across nearly 20 countries. Fosun's net profit plunged 73% to 2 billion yuan ($294 million) in the first half of 2020, mainly due to the losses at tourism-related businesses that have been among the most brutally affected by the coronavirus pandemic.

The company's shares trade at less than half their peak in 2015, a few months before Guo disappeared for a few days for what Fosun ambiguously described as "assistance with investigations by judiciary authorities."

Fosun's healthcare facility in Shanghai. The business segment has grown in prominence with a venture into COVID-19 vaccine development. (Photo by Gong Xing)

Guo said the current challenge was "unprecedented" in 28 years of managing Fosun -- but also an opportunity to consolidate the group, which had to cope with the collapse of the U.K.'s Thomas Cook Group a year ago even before being hit by the pandemic.

Since then Fosun's performance has been hammered by lockdowns that began in China and later spread to the overseas markets where the Shanghai-based group derives 43% of its revenues.

Fosun has long proclaimed that its "ecosystem" of portfolio companies revolves around health, wealth and happiness -- and it is the damage to the last of these that has been most visible in the pandemic and made its minority shareholders most unhappy. Tourism contributed nearly half of revenue last year.

Through Hong Kong-listed subsidiary Fosun Tourism, Fosun owns France-based Club Med, where it initially invested in 2010 before acquiring it wholly in 2015 for 939 million euros ($1.1 billion). Club Med operates 65 resorts in over 20 countries, including seven in China.

The holiday resort chain catering to the affluent had to raise additional funding, offer accommodation credits in lieu of cash to customers who canceled bookings and furlough staff to stay afloat.

"The spring festival (in January and February) was supposed to be a peak period at Atlantis Sanya and Club Med resorts in China but business suffered heavily from the epidemic and ended up with zero revenue," Guo recalled.

Club Med Sanya Resort, Hainan Island (Photo courtesy of Fosun)

Separately, Fosun's 20% shareholding in Cirque du Soleil Entertainment Group is at stake after the Canadian circus operator filed for bankruptcy protection in June.

Known as a Canadian national treasure, Cirque du Soleil was one of the few circus performers left globally until the pandemic forced shows to be canceled.

These have followed the debacle at Thomas Cook, known as the world's oldest tour operator, which filed for bankruptcy abruptly last September after an eleventh-hour rescue bid by Fosun to inject capital into the debt-laden British tour operator was rejected by creditors.

In 2015, Fosun paid $140 million for an initial 5% stake in Thomas Cook, hoping to drive traffic to its Club Med resorts and grow its tourism business on the back of the growing number of middle-class Chinese traveling abroad.

But except for the Thomas Cook brand that it separately acquired for 11 million pounds, and their JV in China, Fosun lost its bet as the business folded.

"It was inevitable that a company would pay a huge price in its globalization foray," Guo said during a news conference on Aug. 28. "When everyone is casting doubts on our failed investment abroad, I would like to highlight our successful deals that justified our globalization strategy."

One of them is the partnership with German pharmaceutical company BioNTech, which granted Fosun the exclusive license to develop and commercialize its COVID-19 candidate vaccine in China. The vaccine, codeveloped with U.S. drug maker Pfizer, has joined other candidates in advanced-stage clinical trials globally in a rush to find a solution for the pandemic.

Guo said such a partnership was only possible after Fosun had grown to where it is today on the back of China's rapid growth and vast market.

Fosun International founder and chairman Guo Guangchang speaks to Nikkei Asian Review in Shanghai. (Photo by Gong Xing)

Fosun, short for the "Stars of Fudan" in Chinese, was founded by Guo and four classmates from Shanghai's Fudan University in 1992 with 38,000 yuan borrowed from friends and relatives.

Born in Zhejiang Province next to Shanghai, the son of a stonemason father and a mother who grew vegetables, Guo, who has two older sisters, carried the need to be the promising son, customary among rural families.

At the age of 25 he followed the xiahai, or "go on a voyage," trend of starting a business under China's reform and market opening endeavor. Fosun Pharma, founded in 1994 was one of his early dabbles into a largely untapped drug market dominated by generics.

With a no-nonsense approach, Guo expanded Fosun's domestic business after the listing of its pharmaceutical arm in 1998, investing in the steel and retail industries before embarking on globalization after its 2007 Hong Kong listing.

Fosun was part of a group of privately held Chinese companies -- including property developer Dalian Wanda Group, airline operator HNA Group and Anbang Insurance Group -- that made hefty investments abroad, alarming many in the market. Beijing responded in 2018 by putting the brakes on peer-to-peer lending -- blamed for fueling speculative investments -- to avoid systematic risk in its financial system.

Fosun's acquisition drive had helped it save time in building up global brands and business networks, Guo said.

Fosun International chairman Guo Guangchang takes time to practice tai chi during a business trip to Davos, Switzerland in January. He says he finds tai chi and meditation useful to maintain a balance between life and work. (Photo courtesy of Fosun)

In a CCTV interview broadcast in 2017, Guo was seen chastising a subordinate at an event in Germany to mark Fosun's completed acquisition of the country's private bank Hauck & Aufhauser. "We should not have lion dance in our events," Guo told the aide. "The Germans will think this is China but you have to tell them this is not China." It seemed to be an acknowledgment of Fosun's need to respect local cultures in its acquisitions.

To stay healthy, physically and mentally, Guo says he practices the Chinese martial art tai chi twice or three times weekly. "Tai chi emphasizes the concept of balance, which can be applied in society and business management," Guo said.

This year Guo has moved to shake up Fosun's management, moving trusted executives up the ranks by creating two positions for chairman and CEO respectively, assisted by a chief financial officer with two deputies. "The change has enabled us to bolster operational capability at the top level, overseeing each business unit below it," Guo explained.

In June, he also sold part of Fosun's 10% stake in Alibaba Group Holding-owned logistics company Cainiao, a move Guo said was to remove noncore assets. Fosun acquired the stake for 500 million yuan in 2013.

These moves did not stop Moody's Investors Service from downgrading Fosun's corporate family rating from Ba2 to Ba3 in July. The rating agency cited Fosun's high and increasing debt leverage due to its debt-funded investment strategy as reasons for the downgrade amid the coronavirus-led economic downturn.

"I feel Moody's overreacted to the impact of COVID-19 on Fosun," Guo said, adding that the group's diversified composition has allowed it to offset some of the corona shock.

With its overseas businesses clustered largely in Europe and Asia, Fosun is arguably less exposed to scrutiny by U.S. President Donald Trump's administration.

And Fosun has so far avoided the kind of liquidity crisis faced by other privately held Chinese conglomerates such as HNA Group, which like Fosun, was at one time aggressively snapping up stakes in companies including Deutsche Bank and Hilton Worldwide.

"With recovery of domestic market well on track and stabilizing financial markets, we see improving outlook for [Fosun] core businesses in the second half," Credit Suisse said in a report on the company on Aug. 27.

Guo says the vaccine development is progressing well with ongoing clinical trials and he hopes to commercialize it by the end of the year. Under the deal with BioNTech, Fosun Pharma holds the rights to market the vaccine in China, Hong Kong and Macao.

Both BioNTech and Pfizer reported on Sept. 9 that preclinical data shows their candidate vaccine has the potential to prevent COVID-19, allowing them to commence global safety and efficacy clinical trials involving 25,000 participants.

Atlantis Sanya Resort, Hainan Island (Photo courtesy of Fosun)

Fosun, Guo says, would like to do more deals with Japan in China, pointing to the attractiveness of China's domestic market. In Japan, Fosun controls property manager Idera Capital Management and ski operator Hoshino Resorts Tomamu.

Guo has not relinquished his appetite for overseas acquisitions completely, suggesting that future investment will have to support the group's existing businesses rather than branching into a new area.

"We will make adjustment based on economic trend, balancing between advancing and withdrawing from a market," he said.

"New overseas deals seem unlikely for Fosun, and while COVID-19 is a contributing factor, so is an otherwise checkered track record," said Brock Silvers, a longtime investor in Hong Kong, referring to Fosun's expansive investment strategy.

"It's hard to be bullish on the travel sector in the near term, but Fosun shouldn't be faulted for defensively trying to salvage its existing position," said Silvers, referring to the measures taken by Club Med to mitigate weak demand.

Guo remains confident in the prospect of an economic recovery underpinned by the commercialization of the COVID-19 vaccine candidate. "I really hope to go skiing in Hokkaido this year," he said.

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