Deals

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Closing off a funding avenue is an unusual measure for acquisitive companies, especially one like Dalian Wanda Group, which has spent billions buying up everything from cinema chains to triathlon organizers. But that's exactly what Chinese tycoon Wang Jianlin is planning with his proposal to take Dalian Wanda Commercial Properties private in a deal worth at least $4 billion.

On the face of it, such a move makes sense, even if at HK$48 a share it's exactly the same price at which the real estate company went public in Hong Kong in December 2014. Stock in the shopping malls and property unit had more than halved from its June peak, before Thursday's intraday 22 percent jump in response to Wang's plan. With Wanda Commercial's sales forecast to decline by a third this year, there seems little chance of any sustained revival, despite 13 of the 16 analysts surveyed by Bloomberg calling it a buy.

Only Dalian Wanda's Hong Kong-listed hotels unit has hurt shareholders more, and the contrast with the group's sexier cinema business is stark. Shares in Wanda Cinema, which is publicly traded in Shenzhen, have increased almost eight-fold since that company went public in January 2015.

On the Big Screen
Wanda's best-performing publicly traded unit has been its cinema business

Wanda Commercial has yet to transition away from heavy exposure to mainland China's volatile real estate market. According to CIMB Securities analyst Raymond Cheng, property development, and in particular development of residential apartments, accounts for about 80 percent of earnings. Shopping centers are a much smaller contributor.

So, if Dalian Wanda wants to shift the unit more toward shopping malls and keep it away from Hong Kong shareholders' prying eyes, buying minority investors out makes a lot of sense.

It also makes sense if Wang is hoping to speed up the process of getting approval for a China listing at a decent price (a company's share price elsewhere being a benchmark for other initial public offerings.) Wanda Commercial had earlier planned to trade in China before plumping for Hong Kong. Credit Suisse says things remain on track for that to happen, and even though markets on the mainland have been volatile, stocks there still trade at a price-to-earnings multiple that's higher than in Hong Kong, which is dominated by institutional investors.

A China share market listing, however, wouldn't provide as ready access to cash. Companies in China that want to raise funds by selling equity need to disclose exactly what they want the money for. In the case of acquisitions, that means disclosing the target, much to the dismay of M&A bankers. As well, there's a queue to get listed in China that stretches to about 700 companies. Wang and his billions are very influential but that's a big distance to leapfrog.

Shop, Shop, Shop Don't Stop
Wanda's malls in China have seen rising average footfall per mall in recent years
Sources: BNP Paribas, company data

Selling bonds onshore isn't the answer it may seem either. While the domestic yuan note market has ballooned since property developers were allowed back in following a seven-year hiatus, the door could slam shut without warning, and regulatory approval for offerings is still needed.

Without a Wanda Commercial that's traded in Hong Kong, Wang just has loss-making Wanda Hotel Development as an offshore listing. That company would be a better candidate to take private, grappling as it is with an oversupply of hotels at home. It's also important to remember, for all the talk of online shopping eating away at firms' bricks-and-mortar business, that Wanda Commercial's malls aren't ghost towns. According to BNP Paribas, footfall is rising, and is on average higher than at other companies' shopping arcades.

Wang has said he's not finished with his overseas acquisitions spree. Perhaps turning off a valuable funding tap is also premature.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net