As Chinese property giant indulges in a selling spree, a plethora of speculation as to the true reason behind the deals proliferates
Since Dalian Wanda Group announced in late July that it has agreed to sell its cultural and tourism projects and hotel assets, market speculation has emerged over its sustainability and profitability. While some have linked the deal with mounting debts or Chinese regulators' agenda on curbing financial risks, Wanda's chairman Wang Jianlin maintains that the move is a symbol of "light-asset strategy."
Chinese property developer Dalian Wanda Group has been thrown into the limelight in recent days as a result of a sell-off of its hotels and cultural and tourism packages.
The assets were "sold" twice within nine days, marking the largest-ever deal in China's property sector history.
The first "sale" was on July 10 when Wanda announced that real estate firm Sunac intended to acquire 76 hotels as well as 91 percent of its 13 cultural and tourism assets in a deal worth 63.17 billion yuan ($9.4 billion).
For the second sale, developer R&F, based in Guangzhou, South China's Guangdong Province, paid 19.91 billion yuan to take over 77 of Wanda's hotels on July 19. On the same day, Sunac signed a deal to buy the 13 cultural and tourism projects for 43.84 billion yuan.
While the agreement has already sparked public discussion as to why Wanda would rush to dump its property assets - inviting speculation that the property giant was on its knees because of huge debts - adding fuel to the fire was Wanda's further move of transferring the ownership rights of its several commercial properties to other institutions.
To alleviate widespread public concern, billionaire Wang Jianlin, Wanda's founder, responded many times in July by saying that the group is in fact embracing a "light-asset strategy" as "Wanda has reached a stage where it can make money through its brand prestige."
The conglomerate's surprising move comes after the central government began prioritizing financial risk reduction in the second half of this year and warned against "irrational investment abroad," which the market believe has prompted Wang's knee-jerk decision.
"Wanda's global shopping spree has been bolstered by a large scale of borrowings and mounting debts in the domestic financial market," Song Ding, an industry analyst at the China Development Institute based in Shenzhen, South China's Guangdong Province, told the Global Times Monday.
Song noted that the move aims to assure Chinese authorities that the company's liabilities would not exacerbate domestic financial risks.
In a statement Wanda sent to the Global Times on July 20, chairman Wang was quoted as saying that the company has enough cash in store, enabling it to repay most of its bank loans after recent asset transactions.
Looking deeper, however, "[chairman] Wang must have deliberated the spinoff, or business model transition, for a long time, as the property giant has been confronted with a slew of difficulties in its recent development path," Song said, adding that the government's tightened supervision just provides Wanda with good timing.