Photographer: Tomohiro Ohsumi/Bloomberg

Sunac Shares Plunge as Contagion From Wanda Scrutiny Spreads

  • Local media report says banks reviewing Sunac credit risks
  • Wanda faces funding cuts, according to people familiar

Sunac China Holdings Ltd. shares and bonds plunged after a local media report that domestic banks are reviewing its credit risk following a deal to buy assets from Dalian Wanda Group Co., a firm that has attracted scrutiny from China’s leaders for its prolific deal binge.

The shares fell 7.3 percent to HK$15.94, in Hong Kong after earlier plunging as much as 13 percent, the biggest intraday drop since July 2015. The developer’s 2019 U.S. dollar bonds were set for the largest decline on record, falling 4.9 cents to 98.5 cents on the dollar as of 3:23 p.m. Hong Kong time, according to Bloomberg-compiled prices.

China Construction Bank Corp. halted the sale of a Sunac product following a notice instructing the bank to review risks associated with lending to the company, Jiemian reported earlier, citing an unidentified person at the lender. The notice also mentioned Wanda, Fosun International Ltd. and HNA Group Co.

Sunac Chairman Sun Hongbin said it was “normal” for banks to review the firm’s credit risks after the Wanda deal, reported, citing an interview. A Sunac representative declined to immediately comment to Bloomberg.

Sunac, which last week said it would buy hotels and theme parks from Wanda for more than $9 billion in China’s largest ever property transaction, is the latest company to face the fallout from heightened scrutiny from the nation’s leaders ahead of a Communist Party reshuffle later this year. China plans to cut off some funding for billionaire Wang Jianlin’s Wanda after deciding the conglomerate breached restrictions for overseas investments, said people familiar with the decision.

Sunac Sinking Puts a Halo Around China Evergrande: Gadfly

Debt King

Sunac’s acquisition from Wanda is billionaire Sun’s biggest gambit in a spree that also included spending $2.2 billion on the shares of firms in the cash-strapped LeEco group, including Leshi Internet Information & Technology Corp. Sunac may be set to become China’s most indebted big developer, with CIMB Securities estimating its net gearing may jump to 300 percent from just over 208 percent at the end of last year. The Wanda deal will be partly financed by Wanda arranging a bank loan for Sunac, according to a company statement.

“Southbound investors may be taking profit in the stock amid concerns over the Wanda transaction,” said Raymond Cheng, a Hong Kong-based analyst with CIMB. “The market is also concerned about risk linked to Leshi as Sunac might need to invest more in the firm to help resolve its liquidity problem.”

Cheng has a “reduce” rating on the stock with a price target of HK$9.60, implying a decline of around 40 percent from the current level.

The Jiemian report said the Wanda deal had triggered banks’ concerns over risks associated with Sunac. It also said a 1.5 billion yuan ($220 million) trust loan to Sunac had been put on hold.

Official Scrutiny

As China scrutinizes overseas deals, Wanda faces punishments including bans on banks providing the company with financial support linked to six investments abroad and barring the firm from selling those assets to any local companies, people familiar with the decision said.

More asset sales may loom from dealmaking conglomerates that face official scrutiny, said Shujin Chen, chief financial analyst at Hua Tai Securities Co. Even if they face no operational problems, “they probably feel pressure,” she said.

Shares of Wanda’s AMC Entertainment Holdings Inc. tumbled a record 10 percent in New York trading on Monday. Wanda Hotel Development Co. fell as much as 7.8 percent and Wanda Properties International Co.’s 2024 notes declined to a record low in Asian trading on Tuesday.

Sun is leading an ambitious expansion at Sunac even as other deal-hungry conglomerates have cooled their pace of acquisitions this year. For the 14-year-old Sunac, which is dwarfed in market value by industry leaders such as China Vanke Co. and China Evergrande Group, the Wanda deal raised concerns the firm was straying beyond its core expertise of residential property and taking on high leverage levels.

Ratings companies have expressed concern. Sunac was cut deeper into junk status by Fitch Ratings, which cited what it called the company’s “acquisitive business approach.” Still, Sunac’s stock is up about 147 percent this year as investors bet that acquisitive developers will prosper as weaker players are squeezed out of the Chinese industry.

— With assistance by Emma Dong, Amanda Wang, Dominic Lau, Crystal Chui, Jeanny Yu, and David Yong

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