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China Probes Finances of Wanda, Fosun (Reports)

Variety logo Variety 6/23/2017 Patrick Frater
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The China Banking Regulatory Commission is understood to have begun a probe into the sources of finance used by some of China’s most acquisitive companies. Companies within the scope of the review are believed to include Dalian Wanda, Fosun International and Rossoneri Sports Investment, a Chinese company which recently acquired the Italian soccer team AC Milan.

Reports of the investigation surfaced in investigative financial title Caixin and have been elaborated on by others with access to China’s state financial system. Other companies include airlines to property giant HNA, and freewheeling insurance group Anbang. The billionaire chairman of Anbang, Wu Xiaohui was recently detained by security forces and is currently prevented from leaving China.

On Thursday there was sharp selling in the shares and commercial debt of Wanda Film Holdings and Fosun International. The shares of both dropped dramatically, though both companies issued statements attempting to reassure investors that business was continuing as normal and that they knew of no issue that required a regulatory alert.

The surge of share trading on Thursday appears to have been triggered by rumors that state-controlled banks had been ordered to sell down their holdings in the companies. The emergence of the banking probe now appears more likely to be the reason for the investor nerves.

According to Chinese financial media, the CBRC is interested in the scale and source of the companies’ debt financing, rather than any specific wrongdoing. Chinese companies and local governments have amassed massive amount of debt, with much of it coming from off balance sheet vehicles and non-state sources. Anbang in particular is believed to have made extensive use of the so-called shadow banking system.

The companies targeted are also among the busiest in China in overseas mergers and acquisition activity. Outside China, Wanda has acquired AMC, Carmike, Odeon UCI Legendary Entertainment, Infront Sports, World Triathlon, and yacht maker Sunseeker. Fosun has stakes in Jeff Robinov’s Studio 8, Cirque du Soleil, travel giant Club Mediterrannee and English soccer club Wolverhampton Wanderers.

The regulatory moves follow the announcement last November of capital controls by a separate regulator. Those were aimed at limiting the massive flows of capital out of China in 2016, stimulated by the weakening of the Chinese currency. The currency controls appear to have stymied Wanda’s proposed $1 billion takeover of U.S. TV producer Dick Clark Productions. Other deals that were called off also blamed China’s official brakes on capital export.

China’s currency has since stabilized and national financial reserves have begun expanding again since February. That would point to a quick victory for the policymakers at the macro economic level. But the fear remains that some companies have over-leveraged themselves in their headlong charge for growth.

The new probe is understood to require ICBC, China Construction Bank, Bank of Communications and Guangfa Bank, among others to look at their credit exposure and conduct a risk assessment.

HNA, parent of the Hainan Airlines operator, has spent billions buying overseas assets that include the Reuters headquarters building in London, U.S. golf courses, a stake in Deutsche Bank, and 25% of the Hilton Hotels group.

By lunchtime Friday, the shares of both Fosun and Wanda Film appeared to have stabilized. Fosun International was down 0.3 at HK$11.7, while Wanda Film was up 0.4% at RMB52.13.

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