The Tencent 4.4b US$ investment is a good deal for Wanda Commercial – Ben Cavender

Ben Cavender

Real estate giant Wanda Commercial got a US$4.4 billion investment from Tencent, a major tech player. A move that is very smart for Wanda, says business analyst Ben Cavender, as it wants to get ready for a now successful IPO in Shanghai, according to Reuters.

Reuters:

The 34 billion yuan deal for a 14 percent stake in Wanda Commercial could also help the unit get back on track with a plan to relist in Shanghai after a bold and ultimately expensive decision to withdraw from the Hong Kong exchange in 2016.

“From Wanda’s perspective it seems a good deal. They’ve overextended with expansions and acquisitions over the last couple of years,” said Ben Cavender, Shanghai-based principal at China Market Research Group, adding that Wanda Commercial had now become a more “attractive mainland IPO candidate”.

The stake will be bought from existing investors who had been part of the $4.4 billion buyout fund created for Wanda Commercial’s delisting in 2016. Those investors had been promised up to 12 percent annual interest if it failed to relist in Shanghai within two years.

The Shanghai IPO has, however, been held up by mainland regulatory measures to tighten liquidity in the real estate sector. Wanda said in a statement that with its new investors it was looking to take the unit public “as soon as possible”.

The Tencent-led group includes major retailer Suning Commerce Group 002024.SZ, e-commerce firm JD.com Inc JD.O and rival developer Sunac China 1918.HK, which bought some of Wanda’s theme park assets last year.

“The tech companies are seen as the darlings of China’s emergence as a global superpower. So, reputation-wise I think this is a good move for Wanda,” Cavender said.

More in Reuters.

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The trouble Wanda is in - Shaun Rein

Shaun Rein

China's richest man, Wang Jianlin, and his company Wanda, got kicked out of the Chinese lending system. Wanda is in deep trouble, says business analyst Shaun Rein to the South China Morning Post. Both in terms of assets backing up his purchases and political leverage.

The South China Morning Post:

The unprecedented instructions would close off any available avenue of financing for the highly leveraged Wanda, which may have contributed to Wang’s decision last week to sell the majority of his hotel and theme park holdings -- including a Harbin park that he’d opened barely two weeks earlier -- to Shanxi magnate Sun Hongbin for US$9.3 billion, in what would turn out to be the largest single real estate sale in China’s corporate history. 

“Wanda is in a lot of trouble,” said Shaun Rein, founder of the China Market Research Group. “ It remains to be seen how much of their growth was built on real asset development with cash flow and how much purely on borrowing money.”... 

“People forget that businessmen need to ensure they are low profile, and always give credit to the Communist Party first,” said Rein of China Market Research Group. “Sometimes as these guys get richer, they forget who’s really in charge.”

More in the South China Morning Post.

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Xi Jinping: more control on private companies - Paul Gillis

Paul Gillis

China is bringing more of its private companies to heel, both domestically and their international investments. Peking University accounting professor Paul Gillis sees it as an effort by president Xi Jinping to consolidate its power, he tells the VOA.

The VOA:

China is probing the loan practices of a group of big private sector conglomerates who have been on a high-profile global spending spree over the past few years. And although the review targets only a few of the country’s most politically-connected companies, some analysts see an attempt to increase government control over the role played by the private sector in foreign markets. 

"I think this is an attempt to change the direction (of) the role these Chinese companies play in the Chinese economy," says Paul Gillis, a professor at Peking University's Guanghua School of Management. "To align them more closely with the policies of the government and to reduce the risks that actions of these private companies could end up having a shock effect on the economy as a whole."... 

Peking University's Gillis says it appears the Chinese government is coming to terms with how to effectively regulate private enterprises, companies that behave more aggressively than their state-owned counterparts. But he also sees the move as a further consolidation of power by President Xi Jinping, bringing companies more under the control of the central government. 

"I think many of the companies had a pretty favorable treatment from prior administrations, and I think Xi Jinping is less enamored of these large private companies than some of his predecessors were." 

Expensive acquisitions by companies like Wanda and Anbang have thrust China into the global spotlight. But the news and commentary that followed the companies' mega-deals has not always been positive.

More in the VOA.

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Who will be the Disney of China? - Jeffrey Towson

Jeffrey Towson

Entertainment parks are becoming big business in China, but there are at least three players trying to come the Disney of China, including Disney itself. Who will be the real Disney of China, wonders Beida business professor Jeffrey Towson on his weblog.

Jeffrey Towson:

The takeaway here is that while Disney’s dream is capturing the Chinese market, that is not the objective of the government, which is actively operating in this sector as both policeman and player. They are focused on the development of an entertainment industry in Shanghai. 

And while the government needs Disney today, it is worth keeping in mind this will not always be the case. 

Finally, well-funded locals, like Wanda and Alibaba Pictures, are now giving chase. This force is the most worrisome. 

Disney is off and running in China. But so are well-funded local competitors. Dalian Wanda Group clearly wants to be the “Disney of China” and has come out with guns and press releases blazing. They are opening multiple theme parks and are the largest owner of movie theaters in China and the U.S. (and #2 in Australia). They are also actively acquiring in Hollywood. Plus you have Alibaba Pictures, Huayi Brothers and others. The competitive picture is daunting. 

However, lots of rich companies have tried to be Disney in the past and have failed. When Disney entered Europe and Japan, lots of local companies had the same ambition. And for decades, other Hollywood studios have tried to replicate Disney in the US. All have largely failed. It turns out copying Disney is pretty difficult. 

Two companies have arguably had some success: Dreamworks, founded by Jeffrey Katzenberg (who previously ran Disney Animation); and Pixar, run by John Lasseter (purchased by Disney in 2006). You could also perhaps point to Lucasfilm, creator of the “Star Wars” franchise (now owned by Disney as well). But all of these are essentially pure media companies. None have replicated Disney’s combination of animation and theme parks. 

I think this has a lot to do with cash flow. Creating animated (and singing) movies that children love is tricky. It takes years of work for one movie, costs a lot of money and is “hit or miss”. If the movie is a hit, you make lots of money. If not, you probably go bust. The unpredictable cash flow makes funding animated movie development and then building large, expensive theme parks impossible for most all companies. Disney’s advantage is that it already has a stable of popular characters and international operations that create financial scale and stability. 

But even Disney has had trouble being Disney at times. It had great success under Walt Disney but struggled in the 1980s as its movies lost their appeal. And when the movies aren’t hits, the theme parks can suffer. New leadership took over (Eisner and Katzenberg) and a string of successes like “The Little Mermaid” and “Aladdin” followed. Disney again stumbled in the early 2000s until it bought Pixar, which made Steve Jobs the largest Disney shareholder. 

So now Chinese companies are trying to be like Disney in China, which is actually really difficult. Wanda is opening theme parks and starting to make animated movies. We will see if they are more successful than past attempts by cash rich companies. Overall, it is going to be an interesting fight to watch.

More at Jeffrey Towson's website.

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Jacky Chan as China's soft power force - Ben Cavender

Ben Cavender

Gaining soft power is not an exclusive issue for China’s government. Jacky Chan and Wanda might be equally important for how the world sees China, says branding expert Ben Cavender to the South China Morning Post.

The South China Morning Post:

… it’s clear China is trying to exert a lot more intangible soft power force on the world,” said Ben Cavender of China Market Research Group. “With (President Donald) Trump coming into power, it’s created a massive opportunity for China to sort of rebrand itself.” 

Building up China’s entertainment industry can also support other sectors, from retail to advertising, which is a crucial move as the government works to maneuver an economic growth transition away from manufacturing and exports. 

“It used to be very difficult for China’s movie industry to go abroad,” Chan said. “Now, China has the capital and the ability to start purchasing foreign companies … this kind of cooperation will lead us to learn more, and allow us to spread Chinese culture overseas to help more people understand China.” 

Chan says he’s happy to use his influence to introduce China to the world, and that falls in line with next steps for his new animation. There are plans to roll out internationally, and eventually make a feature film over the next few years. 

But he has become so ubiquitous — showing up on commercials for everything from shampoo to energy drinks — that consumers sometimes feel “he’s in it for a paycheck because [it seems] he doesn’t care about the product,” Cavender said.

More in the South China Morning Post.

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Distribution: key for the entertainment industry - Jeffrey Towson

Jeffrey Towson

Tencent, Alibaba and Wanda are trying to gain dominance in the entertainment sector. Getting hold of the distribution is one of the key points the winner needs to get right, says Beida business professor Jeffrey Towson on his weblog.

Jeffrey Towson:

Today in China, we can see a lot of players scrambling for dominance in distribution on a changing landscape. This is the clearer path. Broadcast TV is a focus but few licenses are available and this is State controlled. There are certainly lots of DVDs on street corners and pirated downloads, but nobody really controls any of this. 

So much of the focus has been on achieving dominance in cinemas (thus far) – and the release windows for films within these cinemas. Wanda has taken this approach the most aggressively – including internationally with their purchases of AMC Theaters in the USA, Odeon-UCI in Europe and now Nordic Cinema Group in Scandinavia. Wanda Chairman Wang Jianlin has said his goal is to own 20% of the world’s movie screens. 

Outside of cinemas, much of the focus in China is now on online video and streaming. It’s an emerging area where Alibaba, Tencent and a few others are doing an aggressive push into a still grey regulatory area. Note: typically what happens is the regulations are eventually clarified and the market leaders are grandfathered in. But online video and streaming is really the area to watch in 2017.

Much more on Jeffrey Towson's weblog.

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China consumer: pickier than ever - Ben Cavender

Ben Cavender

Pleasing the China consumer has always been a challenge, but - as Tsingtao and Wanda discovered - consumers have become harder to get. Retail expert Ben Cavender nevertheless sees a lot of room for growth, he tells Reuters.

Reuters:

Official numbers may suggest a rosier 2017 for China, but the bottom lines of the country’s top consumer firms – from brewers to noodle makers and cinema chains – paint a patchy picture of spending in the world’s second-largest economy. Tsingtao Brewery Co Ltd, China’s number two brewer, posted its steepest drop in net profit in 20 years last week, blaming tough competition and weak demand. Noodle maker Tingyi saw profits drop by a third. 

China’s top cinema operator Wanda Cinema Line saw 2016 profits rise 15.2 per cent – down from growth of nearly 50 per cent the year before, as broader box office sales stalled. Imax China’s profit tumbled, too. 

“There’s still a tonne of room for growth, but these markets are much more competitive now and even bigger brands are starting to struggle,” said Ben Cavender, Shanghai-based principal at China Market Research Group. 

“Consumers are becoming more cagey about how they’re spending their money, (from) food to clothing and movies.”

More in Reuters.

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Smart move: Wanda hires Disney exec - Ben Cavender

Ben Cavender

The battle between Wanda and Disney got a new twist as the Chinese company hired Andrew Kam, former managing director of Disneyland Hong Kong. A smart move, says retail analyst Ben Cavender in the China Daily.

China Daily:

The hiring of former Disney executives will help Wanda better learn Disney's strategy and insights, said Ben Cavender, principal of China Market Research Group. 

Wanda opened the first Wanda City project in May in Nanchang, Jiangxi province, and four months later the second opened in Hefei, Anhui province, marking the start of Wanda's ambitious plan to build 15 such projects across the country by 2020. 

Wanda Group said more than 1,700,000 people visited the two projects during the weeklong National Day Holiday, while Shanghai government statistics show the Shanghai International Tourism and Resorts Zone, where Shanghai Disneyland is located. 

But Cavender noted that planning and developing a culture business is a complex progress, and if Wanda wants to do it correctly, it is going to have to form a very strong team and long-term strategy rather than hiring a few people and opening parks quickly to get quick profits.

More in the China Daily.

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Why Sony and Wanda can make good partners - Ben Cavender

Ben Cavender

The surprise alliance between makes perfect sense, says retail analyst Ben Cavender to Reuters. Sony gets more access to the China market, and Wanda to Hollywood. And we might expect more tie-up between Chinese companies and global players.

Reuters:

The alliance will help Wanda extend its Hollywood footprint and further Wang's goal of making the group a global entertainment powerhouse. 

Wanda said in a statement on its website the tie-up would use its consumer-facing infrastructure to bolster Sony Pictures' presence in China, which is on track to surpass the United States as the world's biggest probably by next year, according to industry executives. 

"This partnership makes a lot of sense for both parties. Sony will benefit from smoother distribution and playback of its films in China and Wanda will be able to further integrate into the content development side of the business," said Ben Cavender, Shanghai-based principal of China Market Research Group. 

"We are going to see more cooperation going forward...Tie ups make sense because a lot of Chinese companies are also becoming interested in film financing as a form of investment," he said. 

This would be Sony Pictures' first partnership with Wanda, which has previously invested in movies made by Viacom Inc's Paramount Pictures unit, such as "Teenage Mutant Ninja Turtles" sequel, and would give Wanda a step into movie marketing.

More in Reuters.

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Movie companies trade well, despite market slump - Wei Gu

Wei Gu

WSJ wealth editor Wei Gu looks at the Chinese movie industry, and sees they are doing well. Wanda founder Wang Jianlin started to sell shares of his Legendary Entertainment to local investors to strengthen his cash position, but that is not a sign he is in trouble, she writes in the Wall Street Journal.

Wei Gu:

Wanda Group’s billionaire founder Wang Jianlin personally owns 20% of Wanda Pictures. Wanda Culture, which includes Wanda theaters, AMC theaters and other entertainment assets, owns 55%, and the remaining 25% is owned by Wanda Group, according to the document. Investors buying into the deal will receive a mix of new shares in the entity buying Legendary Pictures and existing shares in Wanda Pictures. 

Even after last summer’s stock-market debacle, Chinese movie companies trade at lofty valuations—Shenzhen-listed Beijing Enlight Media Co., for example, at 74 times estimated 2015 earnings; and U.S.-listed Bona Film Group Ltd., which has received a going-private offer from Alibaba Group Holding Ltd. and other investors, at a whopping 1,261 times 2014 earnings. 

Chinese companies have gone on a global buying spree. Acquisitions of U.S. companies set a record last year, according to Dealogic—which has already been broken in 2016. 

A year ago Wanda Group snapped up Swiss sports-marketing company Infront Sports & Media AG for $1.2 billion and World Triathlon Corp., organizer of the Ironman Triathlon, for $650 million. In 2012 it spend $2.6 billion for U.S. movie-theater chain AMC Entertainment Holdings Inc. 

Wanda’s global expansion comes as its cash flow at home slows. Earlier this month, Moody’s Investors Service lowered the outlook to negative from stable for Dalian Wanda Commercial Properties Co., Ltd., the conglomerate’s Hong Kong-listed property arm, citing cash-flow pressure. Dalian Wanda Commercial Properties is China’s largest commercial developer.

More in the Wall Street Journal.

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Alibaba´s Jack Ma losing shine as China´s richest man - Wei Gu

Wei Gu

Alibaba´s shares took a firm dive this week, and as a side-effect chairman Jack Ma might be losing his position as the country´s richest man, writes wealth editor Wei Gu in the WallStreetJournal. Property mogul Wang Jianlin might replace him.

Wei Gu:

A little-known new energy entrepreneur and a property tycoon are set to surpass Internet mogul Jack Ma as China’s richest man. 

Ma, 51, and the founder and executive chairman of Alibaba Group, saw $1.4 billion of his fortune wiped out Thursday following revelations earlier this week by a Chinese regulator that the company had lax oversight on counterfeit goods sold on its market places, as well as other alleged illegal activities on its sales platforms. 

On Thursday in New York, Alibaba shares fell as much as 11% before closing down 8.8% following its lackluster earnings report, as its revenue growth of 40% missed analysts’ expectations, despite its sites hosting a record-breaking online sales day in November. Ma owns 8.8% of Alibaba, according to the company’s IPO filing. 

Alibaba’s shares are still trading  31% above their  initial public offering price in September, when its blockbuster $25 billion listing vaulted Mr. Ma to become China’s richest man. His wealth is now estimated to be $23.1 billion, down from $24.2 billion in mid-December, according to Chinese wealth tracker Hurun Report and a Wall Street Journal tally. 

More Alibaba shares could flood the market when a lock-up period for shareholders expires. Some shareholders can sell up to 40% of their holdings 180 days after Alibaba’s listing in mid September. That would mean around mid-March. 

Chinese property mogul Wang Jianlin, chairman of Dalian Wanda Group, 61, has now surpassed Mr. Ma in terms of wealth. After successful listings of its commercial properties arm in Hong Kong in December and a cinemas unit in Shenzhen in January, his wealth has jumped to $28.1 billion, up from $23.4 billion in mid-December, according to Hurun and The Wall Street Journal’s calculation.

More in the Wall Street Journal.

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Wanda´s aggressive hotel expansion - Rupert Hoogewerf

Rupert Hoogewerf

Real estate giant Wanda is expanding its upscale hotel chain, both domestically as international. Wanda Hotel and Resorts wants to be a top-player in their industry, tells China Rich List founder Rupert Hoogewerf in CRIEnglish. 

CRIEnglish:

Rupert Hoogewerf, who compiles the annual China's billionare list, said Wanda's expansion should not be read as xenophobic, but as an aggressive business move. 

"I think the ambition of Wanda Hotel and Resorts is clear. They want to be a top player in China. As a large real estate developer, they have a lot of properties that they can either start with and give themselves a brand. if a property has been under performing, if the brands that they had previously had not met their management standards, and if they feel they can do better with their own brands, and then they can kick them out." 

Hoogewerf says he wouldn't be surprised to see the Wanda hotel brand go global. 

Earlier last year, the company bought the world's biggest cinema chain, AMC, making Wanda a dominant player in North American. In the same year, the company also won the right to develop a patch of land in central London, the first footprint of Wanda's expansion into the global hospitality industry.

More in CRIEnglish.

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Why China bought American movie theaters - Shaun Rein

Shaun Rein

Wanda's purchase of AMC Theaters raised more than a few eyebrows in the US? Is China buying a backdoor to execute its soft power?  Business analyst and author Shaun Rein explains in Foreign Policy what is behind this and other high-profile corporate purchases by Chinese companies.

Shaun Rein:

Unlike Japanese companies in the 1980s, which believed in the superiority of their own management techniques and sought to replace senior teams at American firms they bought out, most Chinese companies are keenly aware that they lack international-standard best practices. They acquire companies primarily for brand equity and as a learning opportunity. When Lenovo bought IBM's ThinkPad line, then the largest producer of laptops, there were few layoffs; Lenovo actually hired executives from Dell to run operations... 

Wanda's acquisition, like China Bright Food's purchase of the British food brand Weetabix and the Chinese auto company Geely's purchase of Volvo, shows Chinese brands want to acquire global brands rather than the painful, often multi-decade process of building them organically. Chinese companies have the cash and ambition to expand overseas, and are not afraid to do so through mergers and acquisitions. They are looking to become "truly global" -- as Wanda chairman Wang Jianlin recently said the AMC deal would make his company. Americans need to be ready for more of these purchases and understand that Chinese companies are looking out for their own profit and loss column.

More in Foreign Policy.

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More on Shaun Rein and The End of Cheap China, at Storify.

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