Billionaire Wang Jianlin’s dreams of buying a major U.S. film studio may have just evaporated. Instead, China’s second-richest man is working all of his government connections and industry acumen simply to retain the global entertainment portfolio he already has amassed.
Pressure mounted on the tycoon’s Dalian Wanda Group when news emerged July 16 of a banking document circulating on Chinese social media. The mysterious memo alleged that China’s biggest financial institutions had been instructed by state regulators not to supply financing for several of the conglomerate’s overseas acquisitions.
The provenance of the document (which THR has reviewed) has yet to be verified. Some have questioned its authenticity (it was erased from the internet by Chinese censors just as mysteriously as it appeared), but if legitimate, the directive appears to block Wanda from raising funds in China to bankroll its overseas assets, including theater chain AMC Entertainment and studio Legendary Entertainment. The fate of Wanda’s $1.2 billion Beverly Hills development, which broke ground in April, also is unclear.
Seeking to assuage such concerns, AMC issued a statement July 18 emphasizing that it is a U.S.-based company traded on the New York stock exchange, and as such “does not rely upon and is not expecting to receive any future financing from Dalian Wanda.”
Legendary, meanwhile, is believed to be on less solid footing — a THR review last year revealed that the company lost $500 million in 2015, and more than $350 million in 2014 — and the studio has a pricey film slate, including Pacific Rim: Uprising with Universal and other tentpoles.
Yet Legendary has insisted that it is insulated from any regulatory trouble at the parent company. “Legendary is well capitalized with liquidity to fund its film and TV slates and operate its business as usual,” the company said in a separate statement. (And even if the studio were to require additional backing, insiders don’t believe Wanda would have any immediate trouble generating funds stateside for a slate, given the capital, assets and international banking relationships it is known to have off China’s shores.)
But nothing makes investors more skittish about Chinese private firms than an aura of political disfavor from Beijing. And Wanda’s reputation and valuation already have taken a considerable hit. In the wake of the document’s emergence, shares and debt issued by several of its subsidiaries plunged, while Standard & Poor’s put Wanda on negative credit watch, saying the recent surprise sale of its theme parks business — executed to pay down debt — would cut into revenue.
Wanda’s sudden theme park disposal got a late twist Wednesday, when a third party, Guangzhou-based R&F Properties Co., joined the deal and the terms underwent a dramatic revision. Still, Wanda will generate some $9.5 billion from the sale, and Wang took pains to emphasize that the firm “will receive a load of cash and reduce debt significantly.”
Chinese companies have been under tremendous political pressure to reduce their leverage, as government officials have grown increasingly concerned by the high levels of debt coursing through the economy. Wanda and four other conglomerates were singled out in late June when local media reports revealed that the China Banking Regulatory Commission was assessing banks’ exposure to the debt raised by big firms to finance their overseas dealmaking. Earlier this week, Chinese President Xi Jinping convened a high-level conference on financial reform, calling for a reversal of the rising tide of corporate indebtedness.
The billion-dollar question among industry watchers, then, is whether Wang personally has fallen afoul politically, or if his aggressively acquisitive conglomerate has simply been swept up in the broader efforts to clean up China Inc.’s books.
“His detractors are all saying he’s doomed, while his supporters insist none of this really has anything to do with him specifically,” says one veteran Chinese dealmaker. “But the only one who really knows is the man who has his hand on the levers of power — and they never just come out and say.”
One of the more compelling theories among industry insiders is that the answer to the dilemma includes elements of both.
Wanda’s international ambitions in the media, sports and entertainment sectors were once viewed as savvily in-sync with Chinese government goals, as Beijing sought to steer the country away from manufacturing and toward a consumer-based economy, while also boosting China’s soft power voice overseas. In recent years, Wang has gone out of his way, in boldly worded speeches both across the Middle Kingdom and overseas, to publicly present himself as China’s greatest champion of these twin endeavors.
But Beijing’s top-line priorities have since changed, as capital outflows — a record $246 billion in outbound deals just in 2016 — put added pressure on the country’s battered currency, and heavy indebtedness raised the flag of systemic risk. Thus, simply as a practical measure, cracking down on Wang’s “mighty Wanda” could be seen as an effective way for regulators to redirect market psychology, warning firms across the corporate landscape to straighten their accounts.
Despite their patriotic hue, Wang’s big boasts may have brought home political problems, regardless of his reputation for deep government connections.
Late last year, U.S. Senate Minority Leader Chuck Schumer issued a letter calling for greater scrutiny of China’s growing dealmaking in Hollywood, arguing that such acquisitions could reflect the strategic goals of the Chinese government and should be considered in light of national security. Schumer’s letter followed an earlier joint statement from 16 U.S. Congressmen expressing similar concerns.
Both of the statements highlighted Dalian Wanda Group by name (and no other Chinese company, notably), suggesting that Wang’s regular proclamations about his intention to buy up broad swaths of Hollywood and drive Disney out of China — claiming, essentially, that Wanda is the only private company that can carry the water for Chinese soft power overseas — undoubtedly played a part in spurring the trade and security concerns in the U.S.
“He’s called undue attention to the rise of China, and helped revive the whole theory of the China threat, which Beijing is always trying very hard to combat, by arguing that China believes in harmony,” says USC political science professor Stanley Rosen, who specializes in the Chinese film industry.
Authorities in Beijing, thus, may have more than just economic reasons for telling Wang essentially — and epically — to slow his roll.
A version of this story first appeared in the July 19 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.