Photographer: Tomohiro Ohsumi/Bloomberg

Who's Worried About Wanda? Debt Prices Show Divide in Reading Risk

  • Gap between onshore and offshore yields exceeds 2017 average
  • Offshore holders less sensitive to political risks: Nomura

Dalian Wanda Commercial Properties Co.’s onshore bondholders appear more anxious about the developer’s future than their offshore counterparts, debt prices suggest, highlighting investors’ uncertainty about how Chinese authorities will deal with the company.

The interest-rate gap between the two type of notes has widened recently, with the developer’s onshore debt yielding more than 3.5 percentage points higher than offshore bonds of similar maturity. That compared with the average difference of about 1.9 percentage points for this year, Chinabond and Bloomberg-compiled data show.

Dalian Wanda Group Co. -- the parent of the property subsidiary -- is among firms including Anbang Insurance Group Co., Fosun International Ltd. and HNA Group Co. that have faced increased scrutiny from the Chinese government on their overseas investments, as authorities try to slow capital outflows to prevent the yuan from weakening. Analysts are also split on their outlook for the property company’s offshore bonds, with BNP Paribas SA saying investors should exit them, Nomura Holdings Inc. recommending staying underweight and JPMorgan Chase & Co. recommending being overweight on the debt.

“It appears onshore and offshore may have a different sense as to political risk, especially when it comes to ‘rumors,’” said Chuanyi Zhou, a credit analyst in Singapore at Lucror Analytics. “It is hard to say if onshore investors are being irrationally pessimistic or whether the offshore investors are underestimating the risk given the lack of clarity on the situation. We would tend to agree with onshore investors in this instance.”

While other Chinese property firms also have onshore bond yields that are higher than offshore rates, their gaps are narrower. China Evergrande Group’s 2020 yuan note yielded 7.30 percent while its similar-maturity dollar debt was 6.16 percent. China Vanke Co.’s 2020 onshore securities yielded 4.83 percent, compared with 2.75 percent for its 2019 offshore bonds.

Prices of Wanda’s bonds on the two markets have plunged since mid-June when people familiar with the matter said the Chinese banking regulator asked some banks to provide information on overseas loans made to top dealmakers including Wanda Group. The declines deepened on news that the government planned to punish the conglomerate for breaching China’s restrictions on overseas investments by cutting off funding and denying it necessary regulatory approvals, according to people familiar with the matter.

The company has denied Chinese media reports that billionaire Wang Jianlin, chairman of Wanda Group, and his family were stopped at Tianjin airport near Beijing as they were about to depart for London late last month.

The situation surrounding Wanda is a “black box, where no outsider has any advantage looking in,” given the lack of information on the Chinese government’s intent and actions in relation to the company, Charles Chang, the head of Asia credit strategy at BNP Paribas, wrote in a note last week.

Wanda declined to comment.

Read more: Gadfly looks at Wanda’s London land plot sale

Not everyone is pessimistic about Wanda Commercial’s outlook.

Fitch Ratings affirmed the company’s BBB rating on Aug. 31, saying that it expects Wanda’s credit profile to show greater improvement as a result of the group’s execution of its strategy to reduce its assets.

Wanda Commercial had more than 100 billion yuan ($15.3 billion) in available cash as of June 30 while its short-term debt was less than 30 billion yuan, according to Fitch. The expected total receipts of 68 billion yuan if Wanda Commercial follows through with its asset disposal plan will add to its cash pool and the company’s liquidity will remain adequate for the next 18 months, the rating firm said.

JPMorgan said it’s taken comfort from Wanda Commercial’s reduced leverage after the developer sold assets. It gave an “overweight” recommendation on the group’s offshore notes due in 2018 and 2024, the bank said in a note last week. The firm defines that as expecting the bond to outperform the market over the next three months.

Still, recent debt market moves suggest investors are becoming more concerned about Wanda Commercial’s prospects, and the onshore market more so than offshore. While the yield on its dollar bonds due November 2018 climbed 34 basis points since Aug. 25 to 5.93 percent, that on its yuan notes due September 2019 surged 40 basis points to 9.73 percent.

“Probably offshore investors are less sensitive to onshore political risks or not as close to the situation,” said Tony Chen, a credit desk analyst in Hong Kong at Nomura Holdings.

— With assistance by Judy Chen, and Jing Yang De Morel

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