By Lingling Wei and Wayne Ma in Beijing and James T. Areddy in Shanghai
China's banking regulator is conducting a sweeping check on the
borrowings of some of the country's top overseas deal makers,
according to people with knowledge of the matter, in one of the
most forceful attempts yet to get a grip on runaway debt.
The list covers some of the highest-flying private conglomerates
in China, known for flamboyant owners, political connections and
acquisitive appetites. One is Anbang Insurance Group Co., whose
chairman Wu Xiaohui has been detained by investigators of economic
crimes, according to people familiar with the matter. Also on the
list is HNA Group Co., one of China's most aggressive overseas
investors; Fosun International Ltd., whose chairman dubs himself as
China's Warren Buffett, and Dalian Wanda Group, a property giant
that recently has branched out into entertainment.
The fifth company on the list is Rossoneri Sports Investment
Management Changxing Ltd., which made headlines with its
acquisition this year of Italian soccer powerhouse AC Milan.
The five are famed for bold international bets on big brand
names, opaque structures and a dizzying amount of deal making.
Excluding Rossoneri, they accounted for a whopping $57 billion in
overseas investment since the beginning of 2015 -- 15% of Chinese
companies' total, according to Dealogic.
"They're all guys that have engaged in high-profile marquee
international acquisitions," from soccer clubs to Hollywood
businesses, said Bill Bowler, an equity-sales trader at Forsyth
Barr Asia in Hong Kong. The regulator's move has already sent shock
waves through Chinese markets and could rock the deals world, where
the groups are well known.
Fosun and Anbang have both relied on insurance units to build
scale and pivot overseas. While neither name is well-known outside
business circles, each boasts landmark assets. Fosun owns Cirque du
Soleil and Club Méditerranée SA, while Anbang owns New York's
Waldorf Astoria and Essex House hotels. HNA bought 25% of the
Hilton hotel group last year.
The investigation started on June 6, when officials at the China
Banking Regulatory Commission held what was described as "urgent"
conference calls, asking lenders to look over loans made to the
five groups as well as the guarantees provided by banks to let them
borrow overseas.
The goal, one of the people said, is to "examine those
companies' leverage situations and risks." Banks are required to
report the results of their checks to the regulator, which then
will assess whether lenders should cut down their exposure to the
companies, the people said.
Liu Zhiqing, an official at the banking regulator, declined to
comment on the issue but said big companies are naturally a focus
of the regulator when it comes to systemic risk, a phrase
increasingly used by regulators.
Share prices of several listed units of the groups plunged
Thursday on word that some banks have been selling the groups'
bonds. Bank of China Ltd., for instance, began scaling back its
holdings of Wanda-issued bonds in early June, tagging those bonds
as "risky," according to a person familiar with the situation.
China Construction Bank has grown increasingly cautious about
exposure to HNA's international deals, according to a banker
there.
Shenzhen-listed shares of Wanda Film Co., the entertainment unit
of Wanda Group, which is controlled by billionaire Wang Jianlin,
were suspended in the early afternoon Thursday after falling nearly
10%. In a statement, the company denied that banks had dumped
Wanda's bonds.
Hong Kong-listed HNA Holding Group Co., a unit of HNA Group,
fell 6%, while Fosun International closed down 5.8%. Anbang has no
listed entities.
HNA didn't have an immediate comment. Rossoneri couldn't be
reached. A Fosun spokeswoman said operations are normal; she didn't
elaborate. Anbang didn't immediately respond to a request for
comment. Wanda declined to comment on the probe.
The probe into these companies' borrowing is part of a broader
government campaign aimed at safeguarding China's financial system
from potential systemic risk ahead of a major Communist Party
reshuffle later this year.
A surprise of this is regulators' questioning of high-profile
private tycoons, who in many cases have ties to the party elite and
hold positions on top advisory bodies. But Chinese President Xi
Jinping has appeared less enamored than past administrations with
the country's "red capitalists."
Mr. Wu's disappearance this month was the biggest name to face
investigators since the brief disappearance in 2015 of Fosun
co-founder Guo Guangchang for what the company described as
assistance with investigations.
Anbang has described Mr. Wu's absence as temporary. Mr. Wu
earned unwelcome attention for a since-withdrawn plan to help
finance a Manhattan redevelopment owned by the family of Jared
Kushner, U.S. President Donald Trump's son-in-law and adviser.
The headline-grabbing growth of businesses such as Fosun, Wanda,
HNA and Anbang have appeared out of sync as China battles soaring
debt levels and other economic challenges.
Of particular concern to regulators has been a surge in capital
outflows, which pressured the Chinese yuan to weaken and shook
confidence in the government's economic management. Since late last
year, authorities have restricted the ability of Chinese companies
to invest overseas and erected more hurdles for individuals to take
money out. At a March forum, Pan Gongsheng, a vice governor of
China's central bank, called some companies' overseas investment
"irrational and abnormal," chastising them for making those
investments with borrowed money and only for the purpose of
transferring assets offshore.
Rossoneri's deal to buy AC Milan almost was derailed and was
postponed by more than five months, until a U.S. hedge fund stepped
in to back the EUR740 million ($826.6 million) deal, which made AC
Milan the first fully Chinese-owned world-class soccer club.
Overseas direct investment by Chinese companies dropped 56.1% in
the first four months of this year from a year earlier, compared
with a 44.1% surge in such deals in 2016, according to official
data. Meanwhile, capital outflows have slowed in recent months, and
the country's foreign-exchange reserves have risen for four months
in a row, to $3.054 trillion in May.
Just how indebted many of China's big conglomerates have become
is extremely tough to gauge for outsiders.
The equivalents of parent companies for the Anbang, HNA and
Wanda groups aren't listed and disclosure is thin. None of those
groups have credit ratings from the big, global rating
companies.
In December of last year, for example, S&P warned it could
lower its credit rating on Wanda's main property unit, which had
recently delisted from the Hong Kong stock exchange. S&P said
that an increase in "business and financial integration" with the
overall group weakened its credit profile.
HNA Group said it had around $104 billion in debt at the end of
2016. HNA has often used cash flow and assets from its units to
finance other investments, a fact acknowledged by S&P in
November when it lowered the ratings on some European
transportation companies HNA was buying. S&P said it thought
the group's financial policy was "aggressive" and its leverage was
high. A company executive said recently he believes using leverage
makes HNA a smart investor in the current low interest-rate
environment.
Wanda's overseas buying spree has included $3.5 billion for
film-production company Legendary Entertainment and $2.6 billion
for AMC Entertainment Holdings Inc., the world's largest
movie-theater operator. The company's $1 billion bid for Dick Clark
Productions Inc. was scrapped earlier this year due to Beijing's
recent capital controls.
--Phred Dvorak and Julie Steinberg in Hong Kong and Chao Deng
and Grace Zhu in Beijing contributed to this article.
Write to Lingling Wei at lingling.wei@wsj.com, Wayne Ma at
wayne.ma@wsj.com and James T. Areddy at james.areddy@wsj.com
(END) Dow Jones Newswires
June 22, 2017 11:53 ET (15:53 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.