Banking & Finance

Home or away?

Is Wanda’s rivalry with Alibaba behind Wang’s move to IPO in Hong Kong?

Atletico Madrid's Arda is congratulated by teammate Ansaldi after scoring against Juventus during their Champions League Group A soccer match at Vicente Calderon stadium in Madrid

Wang may be set to add Atlético Madrid to his Wanda empire

When Dalian Wanda Group bought the 25-storey Edificio España for $340 million in June, the hope was that the investment by China’s biggest property conglomerate would herald the rebirth of Madrid’s downtown.

There was also speculation that Wanda was on the verge of repeating a business trick it learned in China: aligning its property business in the Spanish capital with a successful football club. And now sport newspaper Marca is reporting that Wanda’s founder Wang Jianlin is in talks to invest in La Liga champions Atlético Madrid. The Beijing Times agreed this week that it is close to a “done deal” and that Wang could buy a 20% stake in the club. (Then again, previous rumours linking Wanda to a host of European football clubs from Italy’s Roma to England’s Southampton all failed to materialise.)

Wanda became a household name in China after its all-conquering Dalian-based team – Dalian Wanda – dominated the local league in the 1990s. Wanda sold the club to Dalian Shide in 2000, but returned to football in 2011 with a three-year plan to invest Rmb1.5 billion ($245 million) in China’s national football association. The investment was followed by the hiring of Spaniard Jose Antonio Camacho as manager of the Chinese national team. But in that case the team’s subsequent poor performance did not help improve Wanda’s image quite as hoped, China Business Journal reports.

Wanda may now be hoping for more footballing success outside China. But could the prospective purchase also be about score-settling at home? Nanfang Daily notes that football analysts in Europe are generally focused on how Wang’s wallet could help Atlético dethrone Real Madrid as the leading team in the Spanish capital. But business rivalries in China are the real motivation, it says. “Wang doesn’t want to see Evergrande dominating Chinese football,” the newspaper suggests.

Backed by the property developer of the same name, Guangzhou Evergrande has emerged as an unusual bright spot amid the country’s otherwise derisory footballing efforts (see WiC216). E-commerce giant Alibaba also has a stake in the club, and the Guangzhou Daily notes that Wanda’s growing struggle with Alibaba may have got on Wang’s nerves.

After Alibaba’s New York IPO last month – the biggest in history – several rich-list compilers also named Alibaba’s boss Jack Ma as the wealthiest man in China. The Hurun Rich List, for one, suggests he and his family have net worth of about $25 billion. Wang is in second place with $24.2 billion.

But that could change since Wang may also be preparing to take part of his Wanda empire public. The Financial Times has reported that Wang has filed to list the group’s real estate unit Wanda Commercial Properties in Hong Kong in what could be one of the territory’s largest IPOs in recent years. Wanda Commercial is the biggest commercial property player in China and second only to Simon Property of the US globally (Wanda aims to overtake it by 2015; see WiC187).

WiC has profiled Wanda’s business model before. To recap: it relies on sales proceeds from peripheral property assets such as residential units, shops and car parks (sold off-plan) to finance its nearby Wanda-branded commercial developments, which it owns and leases (these feature offices and hotels as well as huge shopping malls, see WiC211).

For the year ended December 2013, sales of properties topped Rmb75 billion, accounting for 86% of Wanda Commercial’s revenues. Profit for the year was close to Rmb25 billion (which included a Rmb15 billion gain from increase in fair value of investment properties).

In comparison Vanke, China’s biggest property developer by revenue, reported a net profit of Rmb15 billion last year.

The business model means that Wanda Commercial is a property play that relies heavily on the health of China’s residential real estate market too. So it is a challenging time to be contemplating a stock market debut given the sector’s decling valuations. For instance, Vanke and China Resources Land, a state-controlled developer that has been building up its own commercial property portfolio, are both trading at less than seven times their 2013 net profit. Wanda will hope to do better. According to FinanceAsia, it will try to position itself as “the bluest of the blue chips”, while Securities Daily suggests the company could be worth $60 billion (assuming a fundraising of $6 billion and a 10% public float) or about 15 times last year’s earnings.

The 60% stake owned by Wang’s family would then be worth $36 billion, helping Wang to displace Jack Ma as China’s richest man once more.

Nevertheless the Wanda-Alibaba rivalry isn’t just about the net worth of their respective bosses. The bigger prize at stake is which man will win over the biggest number of shoppers. Put simply, Ma is betting on shopping through online clicks, while Wang is backing a more traditional bricks-and-mortar experience. In 2012, Wang even offered a high profile bet to Ma that online sales wouldn’t surpass 50% of total retail revenues within the next decade. If it does, Wang said he would give the internet tycoon Rmb100 million (see WiC182).

But competition between the two men has led both into each other’s turf. Alibaba invested in a minority stake in the department store operator Intime in March, while Wanda joined with Baidu and Tencent last month to create an $800 million e-commerce joint venture (see WiC251).

And another thing they have in common: both heavyweights are beginning to reinforce their positions at home by venturing abroad. An investment in a top European football club may give Wang a head start over Ma on this latest battlefront.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.