There’s a strange accounting trick behind one of China’s largest property deals ever


Major Chinese conglomerate Dalian Wanda is selling a bunch of its theme parks and hotels for $9.3 billion to Sunac, a Chinese property developer.

That is projected to be the one of the largest Chinese real estate deals ever, and it features an interesting quirk: Wanda is lending nearly half of the total sale figure to Sunac in order to close the deal.

It’s an odd way to finance the sale, and details remain scarce – summarized with one sentence in a Sunac filing to the Hong Kong stock exchange, which came after the deal was announced Monday.

As it stands, Wanda will secure a three-year bank loan of 29.6 billion yuan ($4.36 billion) and lend that money to Sunac. Then, Sunac will use that money to pay Wanda the remainder to take ownership of the properties, according to a stock exchange filing. Both companies have said Sunac will take on all loans associated with these assets, but neither has clarified the amount involved. And although Sunac will have ownership, Wanda will still manage and operate the properties that remain under its brand — and be paid management fees from Sunac.

In other words, it appears that Sunac isn’t taking on debt to make the purchase — except, of course, from Wanda — since Wanda is ponying up the money and securing the loan itself.

The deal sheds some light on the kind of numbers magic that companies can perform. For instance, Wanda no longer has to record debts associated with those theme parks and hotels; all it has is the bank loan it took out to advance money to Sunac, which is now taking on the property and related leverage.

Think of it this way: You sell your house to your neighbor, but take out a bank loan and give the money to him to make the purchase. He takes the borrowed money and pays you right back for the house. You’ll still live there, and are liable to pay off your bank loan, but if the whole thing crumbles and needs major renovation, it’s your neighbor’s problem now. He’s not shelling out much from his own pockets to buy your house, but he is taking on any risks related to the property.

Without further details, it’s difficult for experts and shareholders to surmise the exact nature of the deal beyond back-of-the-envelope calculations. Either way, this financing detail is unusual, and has raised red flags for some.

On Thursday, Fitch Ratings said it would downgrade Sunac to BB- and put the company on rating watch negative because of its plan to acquire the Wanda assets. The deal “will put pressure on Sunac’s leverage over the next 12 months,” Fitch said in a statement.

The acquisition prices, plus debt to be acquired, is “almost as large as Sunac’s net adjusted debt of 89 billion yuan at end-2016,” the ratings agency estimated based on Wanda’s public disclosures.

Earlier in the week, S&P Global also sounded alarm bells, placing Sunac’s corporate credit rating under CreditWatch negative given the Wanda acquisition, and an earlier $2 billion investment into flailing Chinese tech firm LeEco.

“Sunac’s financial leverage could further deteriorate following the large land acquisitions and expansion in the non-core segments,” the ratings firm said.

In the long run, Wanda has said the deal with Sunac will help it to reduce its debt pile and that it would be able to repay many other loans. The move is coming at a time when Chinese authorities are more closely scrutinizing corporate finances and loans to companies like Wanda that have made marquee overseas acquisitions. Dalian Wanda is a private firm and there is little transparency over its debt.

For its part, Fitch called the asset disposal “credit positive to Wanda, as it will immediately alleviate its debt load and improve leverage and recurring interest coverage.” The ratings agency also said it would consider upgrading Wanda to stable from negative outlook once the transaction is completed and it looks like Wanda won’t take on any more debt risk.


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