Wanda unit rating cut by S&P
Dalian Wanda Group Co's biggest unit had its credit rating cut to junk by S&P Global Ratings, raising the risk of higher borrowing costs overseas just as the Chinese conglomerate grapples with greater regulatory scrutiny.
S&P lowered its score on Dalian Wanda Commercial Properties Co to BB, two steps below investment grade, from BBB. The move comes after Wanda agreed in July to sell the bulk of its theme parks and hotel assets to Sunac China Holdings Ltd and Guangzhou R&F Properties Co. Wanda Commercial's dollar bonds due in 2024 dropped the most in a month.
"We expect Wanda Commercial's market position in its property development segment to weaken following the transition," S&P said. Wanda Commercial delisted from the Hong Kong stock exchange in September 2016, with the aim of eventually relisting on mainland. "The prospects of the company's Ashare listing are unclear, and information risks have heightened."
The downgrade, which could make it costlier for Wanda to borrow money overseas, is the latest setback for billionaire Wang Jianlin. His companies have been selling assets, delaying or shelving deals amid scrutiny from Chinese authorities, who are clamping down on capital outflows. In the past couple of months, Wang agreed to sell most of Wanda's hotels and themepark assets for 63.75 billion yuan ($9.6 billion) and scrapped plans to buy a plot of land in central London.
Wanda Commercial couldn't immediately comment when contacted by phone about the downgrade.
Dalian Wanda Group－the parent of the property subsidiary－has faced increased scrutiny from the Chinese government on their overseas investments, as authorities try to slow capital outflows to prevent the yuan from weakening.
"We agree with S&P－there are too many uncertainties in relation to Wanda's strategic change and no clear picture of its future plan," said Chuanyi Zhou, a credit analyst in Singapore at Lucror Analytics. "Not to mention the possible nonbusiness risks. The borrowing cost is likely to be higher."
The company's offshore bonds have suffered, as analysts at banks including BNP Paribas SA have said investors should exit them. The 2024 notes issued by Wanda Properties International, a unit of Wanda Commercial, have lost 2.9 percent this year, the worst performer among high-yield dollar bonds from Chinese issuers in Bank of America Merrill Lynch indexes.
The price of the securities slid 0.5 cent on the dollar, set for the sharpest decline since Aug 28, to 99.9 cents as of 12:08 pm in Hong Kong, according to prices compiled by Bloomberg.