Its been three months since Asia¡¯s (then) richest woman Yang Huiyan lost half her $24billion fortune in China¡¯s property crisis. Yang Huiyan is a majority shareholder in Chinese property giant Country Garden, and saw her net worth plunge to $11.3bn in a year amid the real estate market¡¯s crisis in China.
And now, the debt crisis that has roiled China¡¯s real estate market has spread to one of the country¡¯s largest conglomerates. Fosun, the Chinese conglomerate company which is the owner of English Premier league soccer team Wolverhampton Wanderers FC, Portugal¡¯s largest bank Millennium BCP and French tourism company Club Med, is no longer able to raise capital, so it must sell off assets before it defaults on its short-term debt.
Its billionaire co-founder Guo Guangchang, who resides in Hong Kong, likes to say that he emulates 92 year old Warren Buffett by following the same investment strategy of using the steady cash flow from insurance firms to acquire other businesses. It enabled the 55 year old to build Shanghai- based Fosun into an eclectic empire, as per Forbes report.
But now, "China¡¯s Warren Buffett" Guo is struggling with a problem Berkshire¡¯s Buffett never had. Fosun had been borrowing heavily to fund its acquisition spree and analysts are concerned that it doesn¡¯t have the cash to cover its short-term liabilities. Guo, who had previously relied on funding from bond markets as well as easy credit from banks, reportedly saw his flagship investment arm Fosun International downgraded by the rating agencies deeper into junk territory.
Fosun International¡¯s dollar bonds recently fell to record lows. And funding for borrowers like Fosun has dried up after China Evergrande Group, Kaisa, Sunac and other real estate developers began defaulting on their debts. Spooked bond investors are now staying away from firms with high levels of debt, as they wait to see the outcome of Evergrande¡¯s restructuring and gauge the political environment.
Chinese authorities intent to curb the amount of leverage in the private sector, to reduce financial risks, while directing funding to industries deemed as a priority for the government. Hence, the country¡¯s banks are wary of lending to debt-laden firms, particularly those that aren¡¯t state-owned. As per Forbes report, analysts say that this has left billionaire Guo with little choice but to keep selling his prized assets at discounted prices for cash, an approach that risks shrinking his Fosun empire.
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Fosun International needs to pay down 650 billion yuan ($90 billion) in total liabilities, an increase of 8% from last year. And according to its interim report published towards the end of August, 40% of that is interest-bearing debt, including $17.2 billion in principal payments maturing next June¡ªoutstripping its cash and cash equivalents of just $16 billion.
On September 30th, rating agency Moody¡¯s placed Fosun International on review for further downgrade, as the company¡¯s refinancing risk rises amid ¡°the fast and significant decline¡± of the market value of its listed assets. In the meantime, Fosun notified Moody's this month that it would cease to provide it with relevant information in the future.
Also, shares of Fosun International have tumbled almost 50% over the past year, and reached a 10-year low since its listing in 2007. Guo, whose wealth is largely based on his 72% stake in his Hong Kong-listed flagship, is now worth $2.5 billion¡ªdown two-thirds from last year¡¯s $6.9 billion.
Meanwhile, Fosun International¡¯s profit fell 33% to $375 million in the first half, although its revenue rose 18% to $11.5 billion,Forbes report mentioned.
Fosun groups its businesses under happiness, health and wealth, saying the three branches cater to Chinese families¡¯ growing demand for quality products in areas such as hospitality, medical treatment and wealth management, although none of the three branches have been spared from the recent sales.
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Fosun International¡¯s shares resumed trading in Hong Kong last Thursday, as the company announced its intention to dispose of its entire 60% stake in the parent of Shanghai-listed Nanjing Iron & Steel to Jiangsu Shagang Group for no more than $2.2 billion.?
Prior to this share sale plan, the divestments from Fosun International as well as its parent Fosun Holdings had already reached at least $3.2 billion, up 350% from 2021, according to data from Dealogic, as per Forbes report. Now it remains to be seen how far the company can go by selling stakes or adopt other measures to avoid defaulting on its short term debt amid China's real estate crisis.
Also, Guo's Fosun sold a 2% stake in its Hong Kong-listed tourism arm and Club Med owner Fosun Tourism at a 15% discount to market prices. It also disposed of shares in Shanghai-listed Fosun Pharmaceutical, which is the exclusive distributor of BioNTech¡¯s mRNA Covid vaccine in the Greater China area.
Even Guo¡¯s core insurance business had to be pared back. Fosun International sold in April the U.S. insurance group AmeriTrust for $740 million, before four of its units cut in early September their combined stakes in Shaanxi- based Yong¡¯an Insurance from 40.7% to 14.7%.
Forbes report also mentioned that Chinese conglomerate Fosun also sold in the same month a 0.89% stake in Hong Kong-listed New China Life Insurance through block trades. Although the price of the deal wasn¡¯t disclosed, but the shares have fallen 33% since Fosun first invested at HK$22 apiece back in 2016.
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