Property

A stock called Wanda

Backdoor listing for Chinese property giant

Wang: admires Melvin Simon

Dalian Wanda chairman Wang Jianlin hates being compared to Chelsea owner Roman Abramovich. “We aren’t on the same level,” Wang told reporters in 2011, rebuffing comparisons of a shared interest in football, backgrounds in the military and respectively huge fortunes. (Wang has also implied that he didn’t get rich via the sale of state assets.)

Instead there are other foreign tycoons that Wang prefers to cite as equals. One is the late Melvin Simon, founder of Simon Property Group. The former soldier and owner of the Indiana Pacers basketball team pioneered suburban malls in the United States. He was arguably the first developer to bring cinemas into shopping complexes and would even become a Hollywood producer himself. Simon Property is now the world’s largest property firm by floor area, owning or controlling 325 retail complexes across 242 million square feet.

Simon Property is the model for much of Wanda’s own activity, Wang told China Daily last May. His conglomerate is already China’s biggest cinema owner, introducing itself to American screens last year by acquiring the 346-theatre AMC chain (see WiC151). Wanda’s property portfolio, with 55 Wanda Plazas in operation and more in construction, mimics Simon Property’s huge regional malls, carrying a floor area of 135 million square feet. Wang aims to surpass its peer as “the world’s biggest fixed asset developer” by 2015.

The main difference between the two companies? Wanda has achieved all this as an unlisted firm, while Simon Property has been bankrolling its expansion through the capital market since going public in 1992. Such a feat has led some analysts to query how Wanda’s growth has been financed. “As these Plazas keep breaking new ground nationwide, questions on Wanda’s cashflow have never stopped,” says Talents Magazine.

Late last month, Wanda took its first steps towards a market listing. Hong Kong-listed Hengli Commercial Properties said it has agreed to sell a 65% stake to Wanda for an undisclosed consideration. By acquiring the controlling stake of a relatively obscure firm with a market value of just $100 million, Wanda could have obtained a new financing window. China Vanke, Gemdale and China Merchant Properties have all performed a similar exercise over the past six months. But Wanda’s move is worthy of particular attention given it is the only property heavyweight previously without a prior listing platform.

Wanda is being forced into this ‘backdoor listing’ in Hong Kong as China’s own IPO market remains resolutely shut, says CBN (see WiC177). If Wang uses Hengli in the way speculated, it will become one of the biggest reverse takeovers, or asset injections, in Hong Kong’s capital market history. But Wanda is unlikely to put all of its assets into one basket by listing in a single entirety. Its commercial property unit and cinema operations in China are both candidates in the lengthy queue awaiting Chinese listing approval and Wang has also talked up the prospects of spinning off Wanda’s department store segment.

But why can’t Wanda stay private? The answer: even more aggressive growth may lie ahead.

The Economic Information Daily reckons that Wanda’s total assets have grown by 450% over the past three years. But in order to surpass Simon Property, Wanda needs to almost double its property portfolio over the next two years. Last week, it announced another Rmb45 billion ($7.2 billion) investment plan in Guangzhou, where it is going to build three more Wanda Plazas. But with cashflow reliant on rental income and sales of peripheral property units, Wanda’s current business model can’t sustain its growth story, China Enterprise News suggests.

If things turn out well, Wanda projects $45 billion in assets and $32 billion in annual income by 2015. If achieved, Forbes may need to recalculate Wang’s personal worth too, which stood at $8.6 billion as of March (Roman Abramovich is worth $10.2 billion, in case you are wondering…)


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