Financial engineering is out of fashion in China these days.
Beijing plans to punish billionaire Wang Jianlin's Dalian Wanda Group Co. for breaching restrictions on overseas investments, the Monday after a weekend National Financial Work Conference. The messages from that meeting, held every five years, were crystal clear: prevent systemic risks and promote the real economy.
In other words, don't be too smart, abroad or at home. If one real estate developer sells assets cheaply to another, providing funding for the deal at the same time, it looks like a maneuver that transfers debt and isn't a transaction that helps the economy.
Dalian Wanda's 7.25 percent 2024 bonds dropped more than 5 percent following the news, capping three weeks of pressure on the securities since regulators asked banks to scrutinize overseas loans to the nation's most acquisitive conglomerates: Anbang Insurance Group Co., Fosun International Ltd., HNA Group Co. and Wanda.
Since then, Wanda's $9.3 billion deal with Sunac China Holdings Ltd. raised eyebrows internationally.
Wanda is selling tourism projects and hotels -- at book value -- at a curious time, S&P Global Ratings notes, pointing out that the company only acquired some projects in recent months. Wang said of the Sunac deal that Wanda wanted to go asset-light, but "the abrupt change in its business structure has reduced the visibility of the company's strategy and financial position," S&P said.
Wanda may just be in a hurry to get home. When the company took its Hong Kong unit private a year ago, it promised shareholders that it would go public on the mainland by August 2018, or buy back all the stock plus a 12 percent annual return for domestic investors and 10 percent for international holders. Wanda is now only a year from that deadline.
Could it be that Sunac is just doing Wanda a favor with the listing, in view of the government's concern over leverage?
The authorities aren't naive, however, and the price is coming due. Another case in point: Beijing has asked banks to stop some dealings with Anbang, even after the insurance giant's chairman, Wu Xiaohui, was arrested.
To date, only HNA and Fosun, the other conglomerates named in the June 22 probe, have escaped punishment. Shares of Hong Kong-traded Fosun fell as much as 2.5 percent Monday, following the Wanda news.
None of this is good publicity for companies with a genuine need for overseas assets. But there's more at stake now: China's party Congress this fall will usher in the next generation of leaders under President Xi Jinping. Before that, Beijing is likely to keep cleaning house, as publicly as necessary.
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