Dalian Wanda Nears Higher Buyout Offer for Property Arm

Chinese property-and-entertainment conglomerate Dalian Wanda Group Co. is close to announcing a sweetened offer for its $4 billion-plus commercial-property arm buyout to woo investors, which include sovereign-wealth fund Kuwait Investment Authority and China Life Insurance Group Co.

Wanda, controlled by Chinese billionaire Wang Jianlin, is likely to raise the offer for Hong Kong-listed Dalian Wanda Commercial Properties Co. by about 10%, according to people familiar with the matter. The original buyout price of at least HK$48, which was 24% above the last trading price before the offer was announced, is the same price that investors paid in Wanda Commercial's initial public offering in December 2014.

Founders of U.S.-listed Chinese companies are buying out their shareholders at an unprecedented rate with a plan to later sell those shares to local Chinese investors at a higher valuation. But as the privatization wave reaches closer to home, those deals are facing more uncertainty. Hong Kong's takeover rules are more friendly to minority shareholders than those in the U.S., where Chinese companies are often listed as Cayman Island holding companies and sell American depositary receipts.

"Practical hurdles for the deal look high," Oscar Choi, an analyst who covers the company for Citigroup Inc., said in a report. Wanda would need 90% of shareholders to accept the tender offer and more than 75% of the number of shareholders attending the vote to accept it, he said. Opposition to the deal must be less than 10% of the voter head count.

Wanda needs to convince a number of large investors who bought shares at the time of the IPO, known as cornerstone investors, who hold about half of the shares offered in the original listing. Kuwait Investment Authority holds 8.07% of Wanda Commercial's shares, according to the company's latest filing to the Hong Kong stock exchange, followed by China Life, which owns 7.42%. BlackRock is another significant investor, with a 6.78% stake.

Wanda Commercial's existing investors have been demanding better terms for the buyout offer, according to people familiar with the situation, after they learned that Wanda had told investors joining the going private deal that they could triple their money when it lists domestically.

Before trading in Wanda Commercial's shares was halted on April 22, the stock traded above the offer price in an indication that shareholders expected a sweetened bid. The stock, which last closed at HK$51.30, had traded at around 20% below its IPO price earlier this year as its business took a hit from a glut of shopping malls in China and the growing popularity of online shopping.

This would mark at least the second attempt by Wanda to float its commercial-property arm domestically. Wanda first tried listing it at home before the Hong Kong IPO in late 2014. Wanda resubmitted its application to China's securities regulator on Sept. 2, official records show. Wanda could consider a backdoor listing if it wants to skip the line—China has 768 companies in the listing pipeline as of the end of April. A backdoor listing, however, could trigger other legal complexities, such as obtaining special approval for having foreign shareholders, lawyers and bankers said. An A-share IPO would be the most straightforward route to a domestic listing if allowed by regulators.

A raised offer for Wanda Commercial means investors joining Wanda's buyout bid might have to accept a lower return. Initially, Wanda said if it failed to list the company in the A-share market within two years after delisting, it will buy back shares from offshore investors at a price giving them a 12% annualized return, and from domestic investors at an annual return of 10%, according to an offering document viewed by The Wall Street Journal. The increased buyout bid will result in the company cutting the promised return to 10% for investors outside China and to 8% for investors inside China, according to a person familiar with the matter.

These buyout deals are being fueled with debt and money from local investors hungry for pieces of overseas-listed business seen as higher quality than companies currently for sale on the local exchanges. Wanda is tapping large institutional investors, both in and outside China, as well as private wealth money to fund the buyout, according to people familiar with the situation.

At least one rating agency is concerned about Wanda Group taking on more debt. Fitch Ratings said in April that its ratings on Wanda's commercial-property arm, which has bonds due in 2018 and 2024, might come under pressure if an offer to take the company private by its parent was completed.

"The privatization, if successful, will increase Wanda Group's leverage and further weaken its financial profile after it made a series of aggressive acquisitions since 2014," Vicki Shen, director at Fitch, said in a note. "Wanda's ratings would come under pressure if the formal offer does not provide sufficient ringfencing for Wanda from the group and because of less transparency after the delisting."

Write to Wei Gu at [e-mail]

(END) Dow Jones Newswires

May 05, 2016 07:15 ET (11:15 GMT)

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