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Chinese billionaire Wang Jianlin’s cash-flow woes are far from over.
The Chinese government’s top banking regulators have ordered the country’s largest financial institutions to stop lending to the tycoon’s Dalian Wanda Group to finance its overseas entertainment acquisitions, according to a document seen by The Wall Street Journal.
Beijing officials are understood to have convened a meeting with China’s big banks June 20, where executives were informed that six of Wanda’s recent overseas acquisitions — including Wanda-owned AMC Entertainment’s deals to acquire Carmike Cinemas and the Nordic Cinema Group — were subject to the government’s restrictions on capital outflows unveiled last year.
The document, a portion of which was reviewed by the Journal, refers to four closed and two pending foreign transactions. The two pending deals were related to multibillion-dollar real estate investments Wanda was exploring in Indonesia and Malaysia, a source told the Journal. Although it’s understood that Wanda decided not to pursue those transactions, the regulatory message appears clear: don’t even think about it.
Wanda’s U.S.-based AMC unit, which trades on the New York Stock Exchange, is most likely outside the reach of Chinese regulators. But a sources that the new regulatory actions can be expected to prevent Wanda from generating new financing in China for some of its past transactions.
Wanda’s offshore entities may have to rely on their own capital reserves and fundraising capacities to bankroll any new ambitions — such as, in Wanda-owned Legendary Entertainment’s case, expanding into marketing and distribution, financing a pricey film slate and recruiting a new chief executive (studio founder and chairman Thomas Tull exited in January, leaving Wanda exec Jack Gao in the role of interim CEO).
According to the Journal‘s sources, the new order will prevent Wanda from using any of its Mainland China funds to further capitalize its prior overseas deals. Wanda also remains banned from injecting these foreign entities into its publicly traded entertainment company in China, Wanda Film Holdings. Last year, Wanda attempted to merge Legendary with Wanda Film in precisely this fashion, but the deal was derailed by authorities.
Chinese dealmakers announced a staggering $246 billion in outbound acquisitions last year, but Beijing’s regulators have since pumped the breaks. In an effort to stem capital flight, which was seen as contributing to a devaluation of China’s battered currency, the government upped scrutiny of large transactions and instituted various measures to make it more difficult for acquirers to shift capital overseas.
Although famous for its close government connections, Wanda has increasingly found itself at the center of the regulatory squeeze. Last month, Beijing asked state banks to review their exposure to several of China’s most prolific overseas dealmakers, including Wanda. News of the action triggered a panicked sell-off of Wanda Film Holdings shares, forcing the company to request a temporary suspension of trading.
The latest increase of regulatory pressure on Wanda’s financing perhaps helps to explain Wang’s surprise move last week to sell Wanda’s much-touted theme parks and hotel business to fellow real estate conglomerate Sunac China for $9.3 billion. Wang said the funds raised by the deal would be used to reduce Wanda’s heavy debt load.
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