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China debt crunch

Sale of AMC cinemas closes curtain on Dalian Wanda's global dream

Deal tests tycoon Wang Jianlin's claims to 'always profit' on investments

Dalian Wanda's stake in U.S. theater chain AMC Entertainment has gone from 100% to 0.002%.    © Reuters

HONG KONG -- Dalian Wanda Group's $2.6 billion acquisition of U.S.-based AMC Entertainment Holdings in 2012 was historic not only for the Chinese buyer, but also for corporate China overall.

The purchase of the second-largest cinema operator globally drew parallels with Sony's takeover of Columbia Pictures in 1989, when Japanese money was gobbling up landmark assets in the U.S. and worldwide.

But while Columbia Pictures remains a core part of Sony's portfolio, Wanda Group over the past few days has unloaded virtually its entire remaining interest in AMC as part of an international retrenchment by the once-acquisitive conglomerate.

"Wanda Group has completely withdrawn from the AMC board," the Chinese company said in a statement Sunday. A Wanda filing to the U.S. Securities and Exchange Commission on Friday said the group now only holds 10,000 AMC shares, or 0.002% of its outstanding stock.

Wanda's share sale was "based on its development strategy focused on the domestic market," the group said Sunday.

The company began selling down its AMC holdings in 2018, soon after Chinese regulators targeted Wanda and other private conglomerates including HNA Group, Anbang Insurance and Fosun International over their aggressive, debt-fueled purchases of overseas assets. Banks were told to curtail funding for these deals.

It wasn't what Wanda Chairman Wang Jianlin had expected when he celebrated his purchase of AMC at an event in May 2012 attended by high-ranking Chinese officials, including the vice chairman of the country's top policy advisory body and the vice director of the Communist Party's Central Propaganda Bureau.

"Wanda Group will continue acquiring large-scale cinema chains in Europe and America, and by 2020, we will take 20% of market share," Wang said then.

Indeed, Wanda followed up the AMC deal by buying U.S. rival Carmike Cinemas as well as theater chains in Australia, New Zealand, the U.K. and Scandinavia, plus a British luxury yacht builder, a sports marketing company in Switzerland, a stake in Spanish soccer club Atletico Madrid and Hollywood movie production studio Legendary Entertainment. Wang talked of investing in all six of Hollywood's top studios.

Wanda Group is not a listed entity, so it is unclear how big its debts got or where they stand now. But the group has been shedding holdings, especially since the pandemic, when its heavy exposure to cultural and entertainment businesses proved costly.

Wanda Sports Group sold World Triathlon, an organizer and rights holder of the Ironman triathlon business, to an American private media company last July for $730 million, having acquired it in 2015 for $650 million. Just a few days after closing this deal, Wanda Hotel Development agreed to sell its 90% interest in the 101-story Wanda Vista Tower (now renamed St. Regis Chicago) in downtown Chicago for $270 million.

Aeon Liang, credit analyst at S&P Global Ratings, said on Monday that even after the asset disposals, "the group's credit profile will remain constrained." Liang, who covers property management unit Dalian Wanda Commercial Management Group, said the Wanda conglomerate "still has sizable exposure to capital-intensive or cyclical business segments" such as property, culture and entertainment, which heavily rely on discretionary spending.

S&P rates Dalian Wanda Commercial, which recently abandoned plans to list domestically, as "BB+" -- junk bond territory. For the property management arm to regain its investment grade rating, Liang said the mother company will need to improve its credit profile.

This can happen "if the group targets a more controlled pace of investments in its property development business, and if its cultural segment has a healthy recovery," but he said a downgrade could occur if Wanda Group's credit profile deteriorates, "possibly due to aggressive expansion into property development or weaker cash flows than we anticipate."

A possible spinoff listing of Zhuhai Wanda Commercial Management, a unit of Dalian Wanda Commercial, would boost "transparency" for the group, Liang said.

Wanda Commercial was listed in Hong Kong until 2016. The group is now seeking to raise as much as $3 billion from investors ahead of a possible IPO in Hong Kong of part of the property management business.

Negotiations have been stuck on the issue of valuation, according to market players familiar with the discussions, as most of the unit's assets are commercial complexes, without the residential element common to most Hong Kong-listed property management groups. The underwhelming investor response this week to the IPO of property management group New Hope Service Holdings may add more headwind.

However, Wanda Group spokesperson Yang Zhuo said Tuesday night, "As far as I know, negotiations have been going well."

In its Sunday announcement, the conglomerate said, "Up until now, Wanda Group has always made profit when we exited from our investments." It said it had spent $700 million buying AMC while collecting $1.48 billion from exiting, thanks to a run up the cinema operator's shares in recent months.

But at the time of the original acquisition, Wanda put the price tag at $2.6 billion. The company then simultaneously pledged an additional $500 million investment, making the "total payment by Wanda Group for this transaction to be $3.1 billion," it said.

Wanda's Yang clarified later Tuesday that the original acquisition price tag included AMC's debt and leasing obligations, which Wanda Group no longer has responsibility for after its divestment.

Additional reporting by Narayanan Somasundaram and Cora Zhu in Hong Kong

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