China has instructed banks to cut off funding for six key foreign investments made by billionaire Wang Jianlin’s Wanda Group following scrutiny of the deals.
Wang Jianlin is China’s second-richest man. He has been creating a global entertainment empire with acquisitions stretching from America to the UK. His Wanda Group is the world’s biggest operator of cinemas and owns several Hollywood production companies.
Wanda has been ferociously acquiring foreign assets in recent years, including companies like Legendary Entertainment, AMC Entertainment and Sunseeker International Ltd. Although the group started in property, it focus on entertainment as its key area for growth. It has also branched out to sports with the purchase of Infront Sports & Media AG and World Triathlon Corp. It owns a stake in Club Atletico de Madrid and the group is a top FIFA sponsor.
Now there are suggestions that six investments were found to have violations. These include purchases such as the Nordic Cinema Group Holding AB and Carmike Cinemas Inc. The information comes from insiders who have declined to be named. They stated that banks will be prevented from providing financial support to these investments. They will also bar the company from selling the assets to local companies.
The scrutiny is a pronounced setback for Wang and his ambitions. Since the start of 2016 he has announced more than $20 billion of debt. The market reaction to speculation around his latest financial problems immediately hit trading. Shares and debt issued by subsidiaries of Wanda fell sharply, says the New York Times.
Last week, according to the South China Morning Post, Wang sold the majority of his hotel and theme park holdings. These included a Harbin Park that had opened only a fortnight earlier.
The Chinese government is facing a politically sensitive year. It is clearly ramping up its crackdown on capital outflows and sending a clear message by targeting one of the country’s top businessmen. The effect will undoubtedly be a cooling down of overseas acquisitions during a politically sensitive year in China.
Castor Pang, head of research at Core-Pacific Yamaichi HK commented that: “To investors, political risk is now the biggest concern when investing in Chinese companies.” He pointed out that it’s not just Wanda. “Every Chinese company won’t find it easy anymore to acquire assets overseas,” he said. “Stabilizing the yuan is the top priority for Beijing now.”
The increased scrutiny on external deals meant Wanda scrapped its $1 billion offer to buy Dick Clark Productions Inc., the Hollywood producer responsible for the Golden Globe Awards.
It is not entirely clear which investment rules Wanda breached. Wanda declined to comment; as did China’s banking regulator.
There is concern that Wanda’s financial health, and those of fellow conglomerates, could threaten the broader economy.