Guo Guangchang's conglomerate increases global divestments after punishing rout on property bondsChinese billionaire Guo Guangchang, whose global empire includes French resort group Club Med, Portugal's biggest bank and the English football club Wolverhampton Wanderers, was among the last men standing.
A decade ago, Guo's Fosun along with conglomerates HNA, Dalian Wanda, CEFC and Anbang drove an explosion in offshore Chinese investment but most were undone after President Xi Jinping called time on the debt-fuelled acquisition spree.
Guo survived the crackdown. But he is now back in the spotlight after a sudden sell-off in property bonds put scrutiny on a liquidity crunch and US$40b ($64b) debts at his expansive conglomerate.
Moody's, the rating agency, launched a review of the Shanghai-based group over "contagion" risk spreading to a portfolio that includes scores of companies in China, Europe and the US, as well as hundreds of smaller subsidiaries.
The Fosun bond rout led to two of the company's Hong Kong-traded dollar bonds slumping by more than 35 per cent in mid-June before paring back losses over the past week.
The strains on Guo's empire stemmed not only from higher interest rates and worsening consumer sentiment but also "unknowable political risks", said Victor Shih, professor of Chinese political economy at the University of California.
"Private entrepreneurs in China continue to face this very opaque and difficult to predict political risk, because no one knows if they're going to run afoul of the authorities," Shih said. "It is just extremely difficult to know whether a private entrepreneur will get in trouble."
The immense challenge facing Guo marks the latest twist in an operatic life. But increasing questions over Fosun's debt obligations highlight how the turbulence in China's property sector is spilling across the country's corporate landscape and hitting investors and assets overseas.
"Fosun has a weak financial profile. The company's recurring income, mainly dividends from underlying investments, is inadequate to cover the interest and operating expenses at the [holding company] level," said analysts from Moody's.
Fosun's total consolidated debt stands at Rmb260bn ($38bn), said Moody's, adding that about 45 per cent of its debts at the holding company level mature before the end of March 2023. S&P puts Fosun's holding company debt at Rmb112bn, including both offshore and onshore borrowing but excluding various consolidated investees' debt.
Refinancing via the offshore dollar bond market — in the past a key channel for Chinese developers to tap investors — is difficult for Fosun because funds have soured on China's companies after a series of defaults, including by property developer Evergrande, which has $300bn or more in liabilities.
Xiaoxi Zhang, a financial sector analyst with research group Gavekal, said not only have Chinese property developers been "shut out" of the offshore bond market for months, but in China investors are "more than ever" turning their backs on companies such as Fosun without state backing.
"Those who have a tight cash situation may soon run out of cash as refinancing is difficult, and therefore may default on bonds," she said.
Fosun told the Financial Times it was in a "sound and healthy position", pointing to a debt-to-capital ratio of 54 per cent and total cash, bank balances and term deposits of Rmb96.78bn at the end of 2021.
"[Fosun] and its subsidiaries have established partnerships with more than 100 Chinese and foreign banks around the world and have signed strategic co-operation agreements with many international banks and multiple Chinese banks," it added.
The group also announced plans to repurchase the outstanding principal of two offshore bonds maturing this year, totalling about $800mn.
According to Citi analysts, Guo and his top lieutenants have signalled plans to use existing cash and credit facilities, as well as asset sales, to meet their obligations.
Illustrating Guo's intensifying efforts to shore up liquidity, the company's divestments this year already exceed $2bn, compared with $85mn last year and $420mn in 2020, according to Dealogic data.
Fosun reached a deal in March to sell its fashion division, Lanvin Group, via a special purpose acquisition company. Weeks later the company agreed to sell its US insurance group AmeriTrust to US provider AF Group. In late May, Fosun sold its last chunk of shares in Tsingtao Brewery for $523mn.
The group is also offloading shares in infrastructure investments, selling down stakes in Zhongshan Public Utilities and Shandong Taihe Water Treatment Technologies.
Moody's noted that the company's credit quality, which directly affects its ability to refinance, would probably be weakened because continued divestitures would mean less income from dividends and shrink the size of its portfolio. However, others including Morgan Stanley as well as Japan's Daiwa Securities argue that the market has overreacted to Moody's move to review the company.
Guo, who started life in the eastern province of Zhejiang during the poverty-stricken chaos of Mao Zedong's Cultural Revolution, has demonstrated a strong survival instinct.
After a poor rural upbringing, he earned admission to Shanghai's elite Fudan University then set about building one of China's biggest private companies. His wealth is estimated at more than $4.2bn as of Friday, according to Forbes.
Abroad, the acquisitive conglomerate has counted among its investments Hollywood film production venture Studio 8, New York's One Chase Manhattan Plaza, Canadian circus operator Cirque du Soleil and British travel company Thomas Cook, though the latter two failed.
At home, where Guo remains a household name, Fosun amassed a sizeable property portfolio, a stake in Minsheng Bank, one of the country's largest privately owned lenders, as well as a large pharmaceuticals division that has partnered with BioNTech in a bid — so far unrealised — to bring Covid-19 vaccines to China.
The group's core remaining assets are stakes in more than 40 companies across healthcare, tourism, asset management, mining, steel and tech manufacturing. In 2021, the group's total revenue stood at Rmb161bn and its assets amounted to Rmb806bn, according to the company.
Yet lingering questions stemming from a lack of transparency and complicated structure hang over the group, according to analysts. These are problems that have been hallmarks of collapsed Chinese conglomerates.
Fosun has for many years been among the groups dubbed "grey rhinos" because of the unseen but potentially immense risk they posed to China's financial stability.
After Xi's administration in late 2016 called time on the rhinos' highly leveraged outbound investments, many tycoons went out of business.
In late 2016, Guo himself was suddenly detained by authorities in Shanghai for several days. After his detention, his company privately downplayed the incident as a routine procedure in an investigation into the then vice-mayor of the city Ai Baojun, who was later jailed for graft.
But one person familiar with Guo's situation told the FT that the probe was more serious and that when he re-emerged days later the typically dispassionate billionaire told a group of fellow tycoons the release was "the most special day" of his life.
Many of his peers were less fortunate. Xiao Jianhua, the enigmatic financier with ties to top leaders in Beijing, was snatched from Hong Kong's Four Seasons Hotel in January 2017 and is believed to be detained in Shanghai.
Wu Xiaohui, the head of Anbang, was jailed for embezzlement. Two top executives from travel-to-finance conglomerate HNA were arrested last year. Co-founder Wang Jian fell to his death in France in 2018. Ye Jianming, the head of state-backed conglomerate CEFC has not been seen since being detained in early 2018.
Shih, of the University of California, said Guo's future hinges in part on whether his key political connections — most of whom are believed to be party and business elites from Shanghai — are still in positions of influence.
"I think he still has some degree of protection. But the 20th Communist party Congress may spell the end to the power of the Shanghai faction," Shih said. "On the other hand, he might have been cultivating new backers."
Written by: Edward White in Seoul and Cheng Leng in Hong Kong
© Financial Times