Explainer-Dalian Wanda’s repayment woes weigh on China property sentiment

By Clare Jim

HONG KONG (Reuters) – The market is closely watching whether a unit of Dalian Wanda Group will make a repayment deadline for a $400 million dollar bond early next week, as a failure would weigh on already weak market confidence in China’s property sector.

HOW MUCH DEBT DOES DALIAN WANDA HAVE?

Dalian Wanda Group, owned by China’s once-richest man Wang Jianlin, is the country’s largest commercial property developer managing many shopping malls, offices and hotels across the country.

While there is little transparency on the financial performance at the group level, its flagship property services arm, Dalian Wanda Commercial Management, posted total liabilities of 302 billion yuan ($42.10 billion) as of Sept. 30, 2022, versus total assets of 598 billion yuan.

Wanda Commercial has around 6.7 billion yuan of onshore bonds maturing and puttable through June 2024, according to Moody’s (NYSE:), and $1 billion of offshore bonds coming due in the period.

Its debt pile is small compared to other Chinese residential property developers, many of which have defaulted since mid-2021 amid a debt crisis.

But the market is also concerned about Dalian Wanda’s other commitments like a share repurchase agreement of about 40 billion yuan if unit Zhuhai Wanda fails to complete an initial public offering in Hong Kong later this year.

WHAT IS NEXT FOR DALIAN WANDA?

Wanda Commercial has a $400 million dollar bond due on Sunday, but because it is not a business day, the payment date will be delayed to Monday.

The firm told some creditors on Thursday it expected to complete an asset disposal and use the proceeds for the Sunday repayment, Bloomberg News reported, marking a turn from earlier comment this week that it still had a shortfall of $200 million.

If Wanda Commercial manages this repayment, the next deadline will be a 3.5 billion yuan onshore bond due on July 29. The next debt maturity offshore is in January 2024 for a $600 million bond.

WHAT IS THE SIGNIFICANCE IF A DEFAULT OCCURS?

Analysts said Wanda’s repayment woes are making investors jittery because it was one of the few private developers that survived the property downturn during the past three years. It also managed to issue two bond tranches earlier this year in rare market issuances.

“It comes at the same time as negative news on several other developers too. This has made investors even more nervous about the sector and increased fears about which developer could be next,” said Sandra Chow, co-head of Asia-Pacific research at CreditSights.

“The extreme volatility in Dalian Wanda’s bond prices shows how fearful and emotional the market is at this point.”

Investors are also playing close attention to other names, saying a default by Country Garden and Sino-Ocean Group, whose bonds plunged this week, could send even bigger shockwaves because the first is one of the top market players and the latter is a state-backed firm.

WHAT HAVE REGULATORS DONE TO HELP STABILISE THE SECTOR?

Top policymakers have been trying to bolster liquidity and home demand in the property sector, a key pillar of China’s economy, through a raft of supportive measures since the debt crisis began in mid-2021.

However, so far macroeconomic data and ongoing defaults show the embattled sector is still far from stabilising.

Analysts said a holistic package of policies is needed to stop the market from deteriorating further.

($1 = 7.1730 renminbi)