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China's Fosun seeks $527m from IPO of Club Med-based unit

Chairman says holiday resort chain's years of losses now over

Fosun Tourism Group plans to invest the majority of the proceeds from its IPO in developing more holiday resort centers like Atlantis Sanya.   © Reuters

HONG KONG -- Chinese conglomerate Fosun International is seeking to raise more than $500 million from an initial public offering of shares in the tourism business it has built up around the Club Med resort chain.

In 2015, a consortium led by Fosun, among China's most active buyers of overseas assets, bought out Club Med for 916 million euros ($1.04 billion at current rates).

While the offering prospectus for Fosun Tourism Group shows it has been profitable at an operating level since 2016, Club Med has posted net losses since 2013 due to interest expenses.

Qian Jiannong, chairman and chief executive of Fosun Tourism, said Thursday however that the company returned to the black in the first nine months this year, without providing figures.

"Club Med before we got it was facing quite heavy debt," Qian said. "We have been able to turn the situation around."

Through June 30, the business posted a net loss of 134.61 million yuan on revenue of 6.67 billion yuan but it has redeemed convertible bonds and preference shares in recent months.

The planned offering of a 17.5% stake in Fosun Tourism, self-described as the world's largest "leisure tourism resort group" by revenue, is to start from Friday. Trading of the shares on the Stock Exchange of Hong Kong is scheduled to start on Dec. 14.

Fosun Tourism on Thursday unveiled three cornerstone investors in the IPO. Macau tourism and property company Shun Tak Holdings has pledged to put in $34 million. Alibaba Group Holding is investing $5 million. Suchuang Gas, a natural gas supplier in the eastern Chinese city of Taicang, where Fosun Tourism is building a resort project, is putting in 75 million Hong Kong dollars ($9.58 million).

Fosun Tourism set an expected IPO price range of HK$15.60 to HK$20 a share, which at the top end would result in proceeds of HK$4.13 billion.

Club Med, which was listed on Euronext Paris before the buyout, accounted for virtually all of Fosun Tourism's revenues and profits last year, but the company's operations include the new 11 billion yuan ($1.59 billion) Atlantis Sanya resort center on the Chinese holiday island of Hainan and various tourism services businesses.

In addition to Taicang, the company is building another holiday center in the southwestern Chinese town of Lijiang, Yunnan Province. The company also holds a 6% stake in European package tour company Thomas Cook Group. Fosun International itself holds another 7.23% of Thomas Cook, which has a joint venture travel agency in China with Fosun. The tourism unit also holds a 18.7% stake in Taiwanese pineapple cake producer Vigor Kobo.

The company is betting heavily on building out its new resort centers, with a majority of the IPO proceeds designated for the Taicang and Lijiang projects which are to include theme park attractions and shopping centers in addition to hotels. The prospectus put the cost of the initial phases of the Lijiang and Taicang projects at 2.93 billion yuan and 10.02 billion yuan respectively.

"This kid of tourism leisure project is lacking in China," Qian said. He said that Atlantis Sanya has gotten off to a fast start since its opening in April and is now generating monthly revenues of more than 100 million yuan.

China, however, accounted for just 7.1% of Fosun Tourism's revenues in the first half of the year, even though it has become the company's second-biggest market. France, the home of Club Med, remains the biggest, accounting for 40%.

Club Med now operates about as many resorts as it did at the time of Fosun's acquisition, but Henri Giscard d'Estaing, Fosun Tourism's vice chairman and deputy chief executive, said that 12 more are on track to open by 2020.

Four of these would be in China, partly under the new Club Med Joyview brand the company introduced this year for short-stay resorts located near major Chinese cities. But while adding new resorts, Club Med is also cutting older ones in a move to shift upscale; two have been closed since June, leaving the company with 67.

While occupancy rates at Club Med resorts are comparable to what they were before Fosun's buyout, room rates have risen gradually. In the first half of 2018, the chain took in an average nightly bed rate of 1,317.40 yuan, about 17% more than the 142.40 euros a night it counted in 2014. Qian credited the improvement to Fosun's sales systems and integration with its other tourism services.

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