Wanda’s Waterloo

There are many slang terms for money but their etymology are often uncertain. For instance, the word “bucks” became a substitute for “dollars” probably in the 1700s when deerskins were a popular currency in North America. The term a “grand” is believed to be mobsters’ code word from the early 1900s, meaning one thousand dollars, which at the time was a ‘grand’ sum of money.

Fast forward to modern day China and Rmb100 million ($15.6 million) is known as xiaomubiao, or a “tiny target”. Any Chinese netizen can immediately explain why: it’s a famed term coined by Wang Jianlin, chairman of property conglomerate Wanda Group.

In a televised interview he offered his advice to young people aspiring to be as rich as himself. Wang recommended that they should not be “too ambitious”. What they really needed, Wang suggested, was a step-by-step approach which should begin by setting themselves a reachable “tiny target” of making Rmb100 million first.

To many the tycoon’s advice sounded like it was somewhat divorced from the reality of their lives – to most Rmb100 million is anything but ‘tiny’. The term was soon being employed online in an ironic sense and was so widely shared that by the end of 2016 xiaomubiao was voted by internet users as China’s buzzword of the year. (Significantly it even beat out hotly promoted official terms such as “Belt and Road” in the polling.)

Wang had set himself a slightly more challenging xiaomubiao for 2017: to grow Wanda’s asset size by Rmb100 billion to close to Rmb1 trillion. The 63 year-old tycoon had good reasons to feel buoyant at the time. Forbes had just named him China’s richest man (again). His overseas shopping spree had also left Wall Street bankers and Hollywood celebrities equally awed as he snapped up, just to name a few, US cinema chains, a major stake in a top Spanish football club and prime London real estate.

Wang was so confident in Wanda’s prowess that, when giving a speech at the elite Tsinghua University in January last year, he came up with another widely quoted statement: “Whichever sector Wanda has entered, state-owned enterprises will have no chance to be the boss.”

But one-year on and Wang’s mood couldn’t be more different. Wanda’s breakneck growth has gone into reverse. The deals now being discussed are no longer megabuck takeovers but the sale of core assets to stave off a worsening debt crisis. And as we pointed out last week (see WiC394) Wanda even had to dramatically scale back its tech division and cut the workforce in that supposedly high growth unit from 6,000 to 300.

Thus the new buzzword now circulating about Wang is Waterloo.

‘Wang Jianlin meets his Waterloo?’

That rhetorical question is the word-for-word headline used in an article that has gone viral since last month. The piece was first published on Baoyouqu, a zimeiti (literally “self media”) platform, on December 11. Within days it had attained the stellar “100K+” status on WeChat, which means more than 100,000 had read it. Moreover when something generates that level of interest on the market leading WeChat platform, it’s fairly certain that it is trending aggressively across other social media platforms as well.

The 5,500-word article was written by a famous blogger with the pseudonym Grandpa Beast. The blogger – formerly a senior property market reporter at Southern Weekend – tries to explain why Wang has suffered such a swift reversal in fortune (incidentally, his last 100K+ offering was a 2016 article on the girlfriend of Wang Shi, who founded the iconic developer China Vanke).

Wang Jianlin’s Waterloo moment, Grandpa Beast suggested, came in May last year when Wanda appeared to have stood in the way of the state giant China Railway’s Bandar Malaysia property project in Kuala Lumpur. This, the blogger noted, was a key cog in Chinese President Xi Jinping’s Belt and Road Initiative (BRI).

The article – aside from discussing the significance of this deal in the Malaccan Strait – also went into great detail about how Wang’s firm rose to prominence in China’s northeast, his relations with the central government, his group’s liquidity concerns and Wanda’s resultant asset disposals.

In response to the article Wanda has published an eight-point statement dismissing Grandpa Beast’s comments. Among the rebuttals, the group insisted its financial health remains sound with more than Rmb200 billion in its cash accounts. “All operations are normal, with no debt defaults,” the statement said.

It also hit back that the recent departure of two senior executives was a result of voluntary early retirements and should not be read as a sign that Wanda’s business was faltering. The statement likewise warned that Wanda had alerted the Chinese authorities to the article and said its author may be held criminally liable for defamation.

Did Wang derail a BRI plan?

Malaysia’s Bandar project is one of the largest undeveloped sites situated in any capital city in the world: the former military airbase spans an area five times the size of Tiananmen Square.

Following a visit by Chinese Premier Li Keqiang in November 2015, Malaysia’s state investment fund 1MDB announced it would sell a 60% stake in the property project to a consortium led by the state-owned China Railway Corp for about Rmb7.4 billion.

Bandar Malaysia sits at the starting point of the planned Kuala Lumpur-Singapore High-Speed Rail line and China Railway thought it had the Rmb100 billion project sealed. However, on May 3 last year news emerged that Malaysia had cancelled the deal with the powerful SOE. Astonishingly, the shock announcement came just days before Malaysian Prime Minister Najib Razak set out for Beijing to attend the inaugural Belt and Road Forum (see WiC366).

According to the Straits Times, Najib believed he could return with an even better deal. “A company controlled by China’s richest man has emerged as the front runner to lead the development of the Bandar Malaysia township,” Singapore’s leading newspaper reported on May 9, adding that the new deal would be “substantially higher” in value than the previous contract with China Railway.

Najib actually visited Wanda’s Beijing headquarters on May 13 – just before he was scheduled to meet with Beijing leaders. A photo of Najib’s tête-à-tête with Wang was published on Wanda’s official website. Afterwards, Wang himself turned up at the Belt and Road Forum, talking up Wanda’s BRI ambitions and the possibility of inking a “$10 billion” project in Malaysia.

Did Beijing intervene?

“We believe Wanda Group is in a position to deliver something extraordinary, something so imaginative that we can create Bandar Malaysia as something that all Malaysians and the region can be proud of,” Najib told Malaysian media in Beijing last May.

However, the Straits Times noted that Wanda’s Malaysian investment, despite being held up as a BRI project, was not a sure thing. It was still awaiting the approval of Chinese regulators, it said, noting that Beijing had called a halt to Chinese firms’ overseas deals to prevent large capital outflows from pressuring the weakening renminbi. The Singapopean newspaper later reported that the Malaysian courtship with Wanda had ended somewhat abruptly after Najib met with Li Keqiang. The Chinese premier expressed a wish that the Malaysians stick with their original agreement with China Railway. (Malaysian media outlets carried similar versions of events.)

After returning from the Chinese capital, as matters turned out, Najib remained silent about the proposed Wanda investment. Instead, his administration announced it would open up the Bandar project to international tender again. Now minus Wanda, the ongoing bidding has turned into a stiff contest between a clutch of Chinese SOEs and Japanese railway giants.

“Wang Jianlin was not aware that, Bandar Malaysia would become the Waterloo of his career,” Grandpa Beast wrote on his popular WeChat post, pointing out that Wanda’s bid was double China Railway’s offer.

While the chronology of these events has been well documented, Wanda believes Grandpa Beast’s article to be malicious because it deliberately connected Wanda’s intervention in Bandar Malaysia to China’s BRI ambition. Wanda insists it had heeded the Chinese government’s policies when it sought out the project. It admitted that Wanda executives had visited Kuala Lumpur in March last year, but denied their negotiation had reached the stage of a “price discussion” of the sort Grandpa Beast suggested.

Did Bandar trigger an asset sell-off at Wanda?

Just a couple of weeks after the Belt and Road Forum a drastic policy tightening was ordered by Chinese regulators in June, with state banks instructed to stop lending to overly-acquisitive firms. The central bank made plain that some of the leveraged buyouts occurring overseas might damage China’s financial security at home.

The sudden intervention triggered a flash crash in Wanda’s bond prices. The directive almost instantly put a brake on the global M&A ambitions of Wanda as well as Anbang (see WiC371), HNA and LeEco.

Members of this heavy-hitting group have since turned defensive. Take LeEco’s founder Jia Yueting. He was ordered – and subsequently refused – to return to China to deal with the internet firm’s creditors (see WiC392). A number of buyout deals initiated by HNA have also lapsed (see WiC393), with Reuters reporting the aviation conglomerate is in talks to borrow from Sun Hung Kai Properties, a leading Hong Kong real estate developer (whom HNA had earlier hoped to challenge in its home turf by acquiring a massive landbank by the city’s former airport, Kai Tak).

For Wanda it means the selling-off of assets that have been central to its expansion strategy. In July last year its property unit, Wanda Commercial, agreed to sell a 91% stake in 13 tourism projects (Wang had set up these amusement parks to tackle Disney’s influence in China) to Sunac China. It also sold 76 hotels to the Hong Kong-listed developer Guangzhou R&F.

These two deals helped Wanda recoup Rmb63 billion (see WiC375) but the company’s selling spree has shown no sign of coming to an end. Earlier this month, it also agreed to sell its interests in One Nine Elms, a luxury property development in London, for $81 million to Guangzhou R&F.

Why is Wanda keen to deleverage?

Wanda needs to get back into the good books of the China Securities Regulatory Commission. The stock market watchdog has the power to rule on whether Wanda can return to the A-share market. And for Wang this could be a life-and-death matter.

This bring us back to Wanda’s decision to take private its Hong Kong-listed unit Wanda Commercial in September 2016. That move set back its parent firm HK$35 billion ($4.5 billion) but according to ThePaper.cn, the buyout was actually financed by a group of Chinese and overseas investors (including, ironically enough, China Railway Corp).

In what is effectively a high-stakes gamble, should Wanda Commercial fail to relist in the A-share market before September this year, Wanda Group has to compensate these financiers in full plus pay interest equivalent to at least 10% of the principal.

As a result Wanda could be staring at a funding gap of about HK$40 billion over the coming six months. Meanwhile ThePaper.cn reported that Wanda Commercial now ranks 47th among the list of IPO candidates in the queue but adds the CSRC has deliberately not vetted a property listing for the past few years, owing to worries about overheating in the housing market (Chinese media said the A-share return of R&F has been rejected five times since 2007).

Selling off more of its overseas assets could help plug Wanda plug that funding gap. Paradoxically this course might also endear Wanda to both its critics and the regulators at home. (In retrospect Wang should probably have paid more heed to official media’s treatment of Hong Kong’s richest man Li Ka-shing, who was heavily criticised by Chinese state media for divesting assets in mainland China and Hong Kong while shifting his wealth to Europe, see WiC297.)

“After making all the money in China’s property market, Wanda does not invest the profit in the country. Instead, it has tried to move all of its assets out of the country in a high profile manner. It is Wang Jianlin’s biggest blunder,” a columnist wrote on Laoxiang Guancha, another zimeiti, predicting that Wanda would likely shed more of its overseas investments.

Wang Jianlin recants?

At the beginning of 2017 Wang issued his defiant challenge that he’d take on the might of China’s SOEs. Since then the former PLA soldier has beaten a strategic retreat – and refashioned his image. In fact, Wang was spotted wiping tears from his eyes this week as he sang with his staff a popular patriotic song during an event to celebrate Wanda’s 30th anniversary.

“I’m a man who rarely cries. But I couldn’t hold back my tears while we were singing Ode to the Motherland,” Wang said. “It brought my memory back to July 1998, when Wanda was the only sponsor of the Chinese national football team’s World Cup qualifiers… at half time the 40,000 fans were singing this song over and over. This was the closest we’ve got to the World Cup apart from 2002.”

That remark featured in a 30-minute speech delivered by the penitent tycoon. There was a lot of soul-searching as well as the occasional defence, such as: “Is it financially insecure for a Chinese firm to have interest-bearing debts overseas [a key concern that drove China’s financial regulators’ to chronically tighten lending last June]? What is indeed insecure is the perception of moving one’s assets out of the country.”

Wanda, of course, failed to deliver on Wang’s xiaomubiao promise for 2017 – the group’s asset size instead shrank 11% to Rmb700 billion last year. However, Wang told the audience the company is now better balanced and more focused at home: “Many people suggested Wanda had moved a lot of money out of China. This is totally untrue. Wanda has 93% of its assets in China and merely 7% overseas.”

In spite of that, this month Fitch became the third global rating agency to downgrade Wanda’s debt to the junk category. Wang insists such verdicts are overly-bearish.

“I can guarantee responsibly here and now. Not a single unit of Wanda in the world would default,” the tycoon declared. “Wanda has not defaulted a single time over the past 30 years. We view our trustworthiness as more important than our assets and profit.”

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