Major Chinese conglomerate Dalian Wanda is selling a bunch of its theme parks and hotels for $9.3 billion to Sunac (Hong Kong Stock Exchange: 1918-HK), a Chinese property developer.
That is projected to be the one of the largest Chinese real estate deals ever, and it features an interesting quirk: Wanda is lending nearly half of the total sale figure to Sunac in order to close the deal.
It's an odd way to finance the sale, and details remain scarce – summarized with one sentence in a Sunac filing to the Hong Kong stock exchange, which came after the deal was announced Monday.
As it stands, Wanda will secure a three-year bank loan of 29.6 billion yuan ($4.36 billion) and lend that money to Sunac. Then, Sunac will use that money to pay Wanda the remainder to take ownership of the properties, according to a stock exchange filing. Both companies have said Sunac will take on all loans associated with these assets, but neither has clarified the amount involved. And although Sunac will have ownership, Wanda will still manage and operate the properties that remain under its brand — and be paid management fees from Sunac.
In other words, it appears that Sunac isn't taking on debt to make the purchase — except, of course, from Wanda — since Wanda is ponying up the money and securing the loan itself.
The deal sheds some light on the kind of numbers magic that companies can perform. For instance, Wanda no longer has to record debts associated with those theme parks and hotels; all it has is the bank loan it took out to advance money to Sunac, which is now taking on the property and related leverage.
Think of it this way: You sell your house to your neighbor, but take out a bank loan and give the money to him to make the purchase. He takes the borrowed money and pays you right back for the house. You'll still live there, and are liable to pay off your bank loan, but if the whole thing crumbles and needs major renovation, it's your neighbor's problem now. He's not shelling out much from his own pockets to buy your house, but he is taking on any risks related to the property.
Without further details, it's difficult for experts and shareholders to surmise the exact nature of the deal beyond back-of-the-envelope calculations. Either way, this financing detail is unusual, and has raised red flags for some.
On Thursday, Fitch Ratings said it would downgrade Sunac to BB- and put the company on rating watch negative because of its plan to acquire the Wanda assets. The deal "will put pressure on Sunac's leverage over the next 12 months," Fitch said in a statement.