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- DALWAN 6.875% 23 Jul 2023 Corp (USD) issued by Wanda Properties Overseas Limited, a subsidiary of Dalian Wanda Commercial Management Group Co Ltd ("Wanda"), has recently traded at a sharp decline from around $90 to $60. Given that the bond will mature soon, the dramatic drop reflects the market's lack of faith in the company to the repayment of the bond on schedule.
- According to Bloomberg, Wanda told some creditors that the company is trying to raise funds to repay the bond, but there is a funding shortfall of at least USD 200 million, which accounts for half of the total outstanding principal of USD 400 million. Under the current market condition, raising another USD 200 million swiftly is not an easy task.
- If the company raises funds domestically, even if it is able to raise adequate funds, it might take some time to remit funds abroad, failing to make payment as scheduled.
- Based on the bond issue documents, there is no Grace Period for the bond. If the bond would not be paid on schedule, an actual default and cross-default on other bonds are expected to be seen.
- Since the beginning of the year, the situation of Wanda takes a sharp turn for the worse. The company successfully issued two USD bonds with an aggregated principal amount of USD 700 million earlier this year, making it one of the few Chinese real estate companies that could still access to bond issues this year.
- However, the IPO application of Zhuhai Wanda Commercial Management Group (“Zhuhai Wanda”), a Wanda subsidiary, is lapsed by China Securities Regulatory Commission (CSRC). According to strategic investment agreements, the company is supposed to repay around RMB 30 billion to investors for the share repurchase if Zhuhai Wanda failed to be listed by the end of 2023. Additionally, it would also trigger the early repayment of about RMB 10 billion of offshore bank loans, leaving the market worried about the liquidity crunch the company might be facing.
- Even though Zhuhai Wanda submits IPO application multiple times after the expiration of the prospectus, and up to now the company has applied for the fourth time, no substantial progress has been made so far.
- To add insult to injury, CSRC halted the application of Wanda's 6-billion Yuan corporate bond issue on 28 June this year and suggest the company apply again upon the progress of Zhuhai Wanda's IPO.
- As Wanda is not a listed company with limited public financial data, we thus will mainly refer to the credit report from CCXI, a credit rating agency in China. Looking into operation performance, the total number of Wanda Plaza the company owns or invests in amounted to 479 as of the end of 2022, and the company reported a rental income of RMB 45.1 billion, up 4.4% YoY. The occupancy rate dropped slightly but remains at a decent level of 98%. On the other hand, EBITDA fell by 16.8% from a year ago, dragged down by business sectors such as hotel and property sales.
- Credit-wise, the cash and cash equivalents slumped by 47.8% to RMB 21.7 billion, and total debt stood at RMB 193.5 billion, of which short-term borrowings were around RMB 73.9 billion at the end of 2022, translating into cash to short-term debt ratio of 0.3x or liquidity shortfall of RMB 52.0 billion. If taking the share repurchase resulted from a less-than-expected IPO and restricted refinancing channels into account, the actual liquidity is close to the distressed level.
- It is noted that the book value of total pledged assets amounted to RMB 357.5 billion, of which pledged investment properties totaled RMB 345.4 billion, accounting for approximately 56% of the total asset size, leaving limited room for further fundraising.
- Given the unhealthy credit metrics, rating agencies continuously downgrade the credit rating of Wanda, as Fitch downgraded the issuer's rating from BB to B, while S&P downgraded the issuer rating from BB to B+, with both rating agencies maintaining negative credit rating watch.
- It is very important to note that the company successfully repaid a MTN with an outstanding principal of RMB 1.5 billion on 10 July 2023 amidst a lot of skepticism, indicating a strong repayment willingness. Considering that this is a pivotal moment for Zhuhai Wanda's IPO, the company would likely lose the trust of the capital market if the company defaults on the bond and then might result in more serious consequences. Therefore, we believe that the company is making every effort to raise capital and do not rule out the possibility of having sufficient funds raised in the very near term.
- Apart from the bond due on 23 July, Wanda also has three USD bonds maturing in 2024, 2025, and 2026, which also experienced a significant drop in bond prices, with the bond due in 2024 trading at around $40 and the remaining two at around $30.
- If the company failed to repay the bond due on 23 July, we believe there is ample room for further price crash. Despite the company making the payment as scheduled, the remarkable uncertainty from the IPO of Zhuhai Wanda persists. The failure of the IPO could result in liquidity constraints or insolvency, and investors may consider selling bonds of Wanda as a potential option.
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.
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