Move offers short-term financial gains but won't burnish brand
Hong Kong-listed Dalian Wanda Commercial Properties Co's privatization plan may help the company raise money in the short term, but it bodes ill for its longer-term globalization, experts said on Sunday.
The proposal for privatization has details relating to its delisting plan from the Hong Kong Exchanges and Clearing (HKEx), according to a report from financial website caixin.com on Saturday.
Several overseas special purpose vehicles launched by Dalian Wanda and its investors are expected to help buy up to 14.41 percent of Dalian Wanda Commercial Properties Co, said the report.
If the company fails to go public on a stock exchange in the Chinese mainland after being delisted for two years or as of August 31, 2018, Wanda Group - Dalian Wanda's parent company - will buy back the shares at a level guaranteeing a 10 percent annual return for overseas investors and an 8 percent return for domestic investors, said the report.
The proposal provides ample scope for arbitrage for investors, according to the report.
"Some property developers' shares in Hong Kong have been undervalued. The move makes sense for Dalian Wanda itself as the company has great potential to lift its valuation if it can get listed on the mainland market," Zhang Xin, an analyst at Shanghai-based Guotai Junan Securities, told the Global Times on Sunday.
Dalian Wanda is not the only company seeking a privatization. For instance, media reports in December 2015 said Qihoo 360 Technology Co aimed to be taken private by a consortium in a deal valued at approximately $9.3 billion. Then the 21st Century Business Herald reported on March 31 that the deal has been agreed by its shareholders.
"Along with the stricter regulations of the mature stock markets, these overseas-listed companies come under pressure to raise more funds after their IPOs," said Zhang, noting that such companies see opportunities in the mainland market.
"Compared with overseas stock markets, companies on the mainland market will have higher valuations, which could help companies like Dalian Wanda raise funds much easier in the short term," Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, told the Global Times on Sunday.
Zhang and Dong expressed concern over Dalian Wanda's privatization.
"If Dalian Wanda can't get listed on the mainland stock market as it plans, it will have to spend a lot of money to compensate investors based on its privatization plan," Zhang said.
"Also, it's not good for Dalian Wanda's globalization and brand-building [to move from the] Hong Kong market to the mainland market," said Dong, noting that the mainland market is less mature than the Hong Kong market.
Some international rating agencies have also taken a negative view of Dalian Wanda's plan.
The planned privatization of Dalian Wanda is "credit negative" if it occurs, according to a report released by Moody's Investors Service on April 1.
"The privatization could weaken the company's financial flexibility by constraining its access to the equity capital markets," according to the Moody's report, which cited Kaven Tsang, a Moody's vice president and senior credit officer.
"Moreover, the privatization could weaken corporate transparency and the timeliness of information disclosures, as well as undermine [Dalian Wanda's] corporate governance structure and protections to investors."
Dalian Wanda is considering a voluntary general offer to acquire all its H shares for a price of at least HK$48 ($6.19) per share, which could result in its privatization and delisting from the market, the company said in a filing it sent to the HKEx on March 30.
