Facing a regulatory firestorm at home, billionaire Wang Jianlin said he would heed the government’s wishes and refocus his conglomerate’s investments “within China.”
A little less than a year ago, Chinese billionaire Wang Jianlin said he planned to pour billions into all six of Hollywood’s major studios. Now he’s unlikely to sign a sizable deal with any of them.
Addressing the swift regulatory crackdown that has engulfed his Dalian Wanda Group in recent weeks, Wang said his new international investment strategy would essentially be a retreat from the world stage.
“Wanda will respond to the state’s call and has decided to keep its main investment within China,” Wang told Caixin, a leading Chinese business news outlet, over the weekend.
Wang’s statements were followed Sunday by reports that Beijing’s recent clampdown on Wanda’s international dealmaking was approved by Chinese president Xi Jinping himself. The news suggests that Beijing’s about-face on the topic of outbound investment — from previously encouraging Chinese companies to go global to aggressively reining them in — is a priority that stretches to the very top of the Chinese leadership.
The government’s stern handling of Wanda, one of the country’s preeminent and most politically connected firms, is sending a strong signal across the Chinese corporate landscape, which could put a damper on any major Chinese investment in Hollywood.
“It feels like an avalanche,” Jingzhou Tao, a lawyer at Dechert LLP in Beijing specializing in mergers and acquisitions, told The Wall Street Journal. “This is sending a shock wave through the business community.”
Wanda’s troubles picked up momentum in late June when rumors emerged in Chinese investor circles that a state-owned bank had ordered its staff to divest of Wanda-related bonds. Those rumors were followed by reports in July that regulators had barred state-backed financial institutions from making new loans to Wanda and several other major conglomerates to fuel their overseas expansion. The actions put a sizable dent in Wanda’s reputation and valuation, as the shares and debt issued by several of the conglomerate’s subsidiaries plunged.
Among the other big Chinese dealmakers targeted by the crackdown is Fosun International, which is the primary financier of Jeff Robinov’s Studio 8 venture at Sony Pictures, and fellow conglomerates HNA Group and Anbang Insurance Group. Together with Wanda, the Chinese giants have completed a combined $55 billion in overseas acquisitions, according to the Journal.
Since the clampdown began, Chinese companies have come under tremendous pressure to reduce their leverage as government officials grow increasingly concerned by the high levels of debt coursing through the economy. Regulators are understood to be especially perturbed by the billionaire tycoons’ recent debt-fueled acquisitions overseas, many of which they view as irrational and overpriced.
Wanda paid $3.5 billion for Burbank, Calif.-based Legendary Entertainment last year — a price that was widely viewed as a steep premium, given the studio’s light intellectual property holdings. Wanda later abandoned a plan to acquire U.S. TV producer Dick Clark Productions for $1 billion, after insiders on both sides of the Pacific questioned the price and rationale of the deal.
Responding to the shifting regulatory winds, Wang has curtailed his ambitions with the same boldness he became known for in expansion. After boasting last year that he would drive Disney out of China’s theme park sector, the billionaire recently beat a surprise retreat, unveiling a $6.5 billion sell-off of 13 major theme park projects, as well as a $3 billion sale of 77 Wanda hotels (the deal was mysteriously reworked a week after it was announced, with Wanda upping the price tag by $200 million but receiving additional investor scrutiny for the change-up).
Asked by Caixin on Saturday to explain the background to the asset sale, Wang suggested that a key driver was a recent high-level economic policy conference convened by Xi Jinping, which called for a reduction in corporate indebtedness.
“The big picture is the state policy and macro-economic environment — companies have to follow the trend of the national economic development,” Wang said. “In recent years, deleveraging and inventory reduction are the main tone of property industry policies, especially after the recent National Financial Work Conference, which highlighted efforts to reduce leverage and debt load.”
Wanda had previously told Caixin that Wanda’s “debt ratio will be greatly reduced” by the theme park and hotel sales, and that “all proceeds will be used to repay loans.”
“Wanda sold what should be sold and maintained what should be saved,” he added on Saturday.