The man who declared war on Disneyland just opened the world’s largest indoor ski resort. And now he’s being forced to sell it.
As the South China Morning Post reports, Wanda City, the $6 billion resort development built by China’s wealthiest tycoon Wang Jianlin, opened for business two weeks ago. The resort, which, at 1.6 square kilometres, is the world’s largest indoor ski park.
Now, it’s being sold along with the company’s other theme-park related holdings as Wanda Group seeks to pay down some of its enormous debt burden, which has recently attracted the scrutiny of Chinese authorities. The push into theme parks, part of the conglomerates debt-fueled global shopping spree involving several entertainment businesses, was partly an issue of national pride for Wang. When Disneyland Shanghai opened last year, drawing enormous crowds, Wang angrily declared “the frenzy of Mickey Mouse and Donald Duck and blindly following them is over,” according to the New York Times, and vowed that his theme parks would be even more successful.
The announcement of the deal triggered a bizarre reaction when shares of Wanda Hotel Development (0169.HK) - which is mostly responsible for development of property projects outside of China -and which inexplicably surged more than 150% after news of the deal... even though none of the hotels being sold are included under this entity. As shown in the chart below, shares of Wanda Hotel Development exploded higher, the most since April 2013, after the news that its parent was selling hotel assets to Sunac, yet assets which were completely unrelated to 0169.HK.
Located in the city of Harbin - near the country’s northern border with Russia - the resort features Russian architecture, a movie theater and a grand piano-shaped indoor ski resort that allows 3,000 people to ski or snowboard on six runs, all in an area covering 1.6 square kilometres. Up to 30,000 people will be hired to work in the resort, Wang said around the time of the opening. Harbin is also known for having China’s harshest winters.
“Harbin is known as the city of ice, which also happens to be the main theme of this resort, so we will together provide winter sports throughout the year,” Wang said.
According to the SCMP, skiing is gaining popularity in China, as the country prepares to host the 2022 winter Olympics in Zhangjiakou near Beijing.
The indoor ski slope isn’t exactly exotic in Harbin, where the winter season can last as long as six months, with the lowest temperature plummeting to minus 36 degrees Celsius. The city’s main tourist attraction is its annual ice festival, featuring life-size sculptures carved out of ice.
“This is a brand-new community that includes not only a theme park, but also a school, a hospital, housing and hotels,” said Andrew Kam, vice president of Wanda Cultural Industry Group, whom Wang hired from Hong Kong Disneyland. “There is nothing like this before.”
Wang had pumped nearly 40 billion yuan ($6 billion) into the Harbin resort, since opening a similar-size Wanda City in Nanchang city in southeastern China’s Jiangxi province in May last year.
Tickets to Wanda’s Harbin resort start from 68 yuan for a 2-hour tour of a snow castle for an adult, and as much as 488 yuan for unlimited use of the ski slope. By comparison, an adult ticket at Shanghai Disneyland costs start from 370 yuan during the low season and goes up to 499 yuan during the peak season.
Wanda agreed to sell its theme-park business on Monday as part of a $9.3 billion deal involving 76 hotels and a major chunk of 13 tourism projects. Wang sold the portfolio to Sun Hongbin’s Sunac China in a deal worth 63 billion yuan (US$9.3 billion). All the proceeds from the sale will be used to repay bank loans, Chinese media Caixin reported.
The sale comes after China’s banking regulator last month asked lenders to review loans made to big overseas deal makers, including Wanda, to assess whether their escalating debt posed a credit risk, the Wall Street Journal noted.
While no wrongdoing was indicated, the revelation sent the stock prices of Wanda-related companies falling, while the yield on its bonds shot up. Wanda was cited on June 22 by the China Banking Regulatory Commission for special attention, along with the country’s three other biggest overseas asset buyers Anbang Group, Fosun Group and the HNA Group. The four must pay the equivalent of $11.5 billion in debt service by the end of 2018.
Wanda said it’s disposing of assets to “fully exercise the competitive industrial advantage” with its buyer, but analysts, who already smell blood in the water, say the company may be buckling under the scrutiny of China’s banking regulator to pare back on debt.
“Wanda may be feeling the financial pressure, or it won’t need to sell off so many assets,” said Liu Feifan, a property analyst at Guotai Junan International. “Wanda may badly need funding to support its expansion, but can’t count on rental income.”
The company has confronted other failures earlier this year. Wanda had to abandon a $1 billion takeover of Dick Clark Production in March, after it failed to obtain regulatory approval to remit funds for the acquisition, incurring a $50 million breakup penalty. The company famously bought film-production studio Legendary Entertainment, which released the blockbuster “Jurassic Park III,” in early 2016, provoking fears among lawmakers that the company’s new Chinese owners would seek to influence how China is portrayed in US media.
The deal is the single largest property transaction in Chinese history. Sunac China, the seventh-largest Chinese developer, was founded by Shanxi tycoon Sun Hongbin, one of the country’s most acquisitive property developers. The deal also shows how quickly companies will respond to regulators’ concerns. It raises the question: Will this be China’s preferred strategy for deleveraging its corporate sector? An ad-hoc approach where regulators single out companies for criticism, then allow pressure from investors to work its magic?