A Wanda Plaza mall in Harbin, China (Getty Images)
Chinese regulators have asked Dalian Wanda Commercial Management to provide additional details on its application for an IPO in Hong Kong, raising concerns about the country’s largest commercial developer’s ability to meet its IPO deadline this year.
The China Securities Regulatory Commission (CSRC) has asked Zhuhai Wanda Commercial Management Group, a Wanda subsidiary responsible for managing its portfolio of 425 shopping malls, to disclose some related party transactions and its dividend policy as part of its IPO application Credit to be explained in more detail Agency S&P Global Ratings sees the request as adding uncertainty over the group’s ability to obtain regulatory approval for an IPO that has already been delayed three times.
“In our view, there is now less clarity as to whether Zhuhai Wanda will be listed by the end of 2023. We don’t have a clear guidance at the time of final regulator feedback,” S&P said in a statement Tuesday.
The IPO setback prompted the rating agency to downgrade Wanda Commercial’s credit rating on Monday. The mall management division of Wang Jianlin’s Dalian Wanda Group is also now locked in a legal battle after a Shanghai court reportedly froze RMB1.98 billion ($278.18 million) of its shares earlier this week.
Wanda takes control of herself
In a letter dated June 2, CSRC asked Wanda Commercial to provide additional information on related party transactions and commitments that proceeds from the IPO will not be used for real estate development, as well as the rationale for its cash dividend policy.
Wang Jianlin from Dalian Wanda Group
The regulator has also questioned Wanda Commercial’s data on its malls, demanding more details on its majority shareholder’s near-term debt servicing risk, among other things.
In addition, the company has been asked to take safeguards to prevent misappropriation of funds by related parties and to avoid issuing guarantees to controlling shareholders.
S&P noted that it has been more than six weeks since the CSRC received Zhuhai Wanda’s application for an overseas listing in April, a process that normally takes only 20 working days, and the long wait puts the relationship of both Wanda Commercial and Dalian Wanda Group to the test with their lenders.
“We believe that in the absence of positive feedback on Zhuhai Wanda’s IPO for an extended period, DWG’s funding channels may narrow further,” the rating agency said. “Weaker than expected property sales for Wanda Properties, a sister company of Wanda Commercial, have worsened the situation for the group.”
Zhuhai Wanda’s previous application for a Hong Kong listing had lapsed on April 25 because it failed to receive approval before the deadline that same month. It was the company’s third failed attempt to list on the HKEX since mainland Chinese billionaire Wang Jianlin first attempted to list its mall business back in October 2021.
Debt profile deteriorates
S&P downgraded Wanda Commercial to BB from BB+ as the parent company struggles with weakening liquidity. The downgrade comes just a week after Fitch Ratings lowered the company’s credit rating from BB+ to BB-.
S&P said it may lower its rating on the company further if it confirms that Zhuhai Wanda’s IPO attempt failed or if the group fails to implement alternative liquidity support measures. It said weak sales from Dalian Wanda Group’s real estate development business could further affect the group’s credit profile.
“We can confirm the rating if Wanda Commercial and DWG can maintain their liquidity by implementing solid backup plans and maintaining solid funding channels in case Zhuhai Wanda’s IPO fails or is significantly delayed,” it said.
If Zhuhai Wanda is unlisted by the end of this year, Wanda Commercial and Dalian Wanda Group will have to buy back all shares before the IPO and offset investment income, according to S&P. The total cost is estimated at RMB 40 billion.
Investors who have provided $1.3 billion in debt capital to the company ahead of the IPO include PAG, CITIC Capital, Country Garden Holdings, Ant Group, Tencent and the Cheng family of New World Development.
Chinese construction companies are threatened with delisting
Though Zhuhai Wanda Commercial Management Group posted operating income of RMB46.45 billion last year — two and a half times that of its closest competitor — Wang’s Wanda Group is the latest in a growing group of financially troubled mainland developers.
Currently, 11 real estate companies are facing delisting from the Shanghai and Shenzhen stock exchanges after their share prices fell below RMB 1 each for more than 20 trading days – in violation of exchange rules, according to a separate report by S&P.
The rating agency said the companies had a total of $21 billion in outstanding debt — both domestic and overseas — that faced the risk of non-payment should the companies lose their listing.
“The delisting increases the strain on a sector that has had some really difficult years,” said Esther Liu, an analyst at the rating agency. “The event rules out the possibility for Chinese developers to recover and for investors to get their money back.”
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