It was a fast and furious decline that puts even China Evergrande Group to shame. Dalian Wanda Commercial Management Group Co., the country’s biggest shopping mall operator, issued $800 million bonds earlier this year. It was the first junk-rated developer that managed to tap into the offshore market since a record wave of defaults in 2022. By the end of May, Wanda’s February issue was already hovering at around 40 cents to a dollar, and investors have not been paid a single coupon yet. 

The alarm bells started ringing in late April when Wanda said a planned initial public offering in Hong Kong of its property management subsidiary would not be happening any time soon. China’s stock watchdog needed more time to work out detailed equity-raising policies for real estate developers, the company said. It was a sharp turnaround: In recent months, Wanda was giving investors the impression that the IPO of Zhuhai Wanda Commercial Management Group Co. was imminent.

If the share sale failed to go public by the year-end, Wanda will have to repay its pre-IPO investors, who bought in about two years ago, around 40 billion yuan ($5.6 billion). This uncertainty immediately puts Wanda in an awkward spot: As of March, the developer held 28 billion yuan in cash, and it had 22 billion yuan of bonds due within the next 12 months, according to Fitch Ratings.

As such, the company has started asking its Zhuhai Wanda investors, including Hong Kong-based private-equity firm PAG, to amend their terms and defer their rights by two years, reported Debtwire. Meanwhile, the developer is speeding up asset sales. 

This is a familiar playbook that brings back painful memories. China’s biggest builders have been hoping that equity raisings could help them deleverage, except this is not the government’s preferred method. Beijing wants to see them shrink their balance sheets instead. Evergrande, for instance, struck a pre-IPO financing deal in 2017, promising to win approval for a backdoor listing in Shenzhen by early 2021, or risk a 130 billion yuan repayment.

The ending was not pretty. Evergrande did not get the regulator’s nod.

So will Wanda have better luck? Will its pre-IPO investors agree to an extension, or take their money and run? In late 2020, most of Evergrande’s backers kept faith. Investors holding about 86 billion yuan equity stakes, or roughly two-thirds of the financing, agreed to waiver their rights to demand immediate repayments. A few must have buyers’ remorse now, as they are mired in a messy restructuring. One is demanding damages via a local court. Country Garden Holdings Co., one of Zhuhai Wanda’s backers, is disinclined to term amendments, local media Caixin reported.

Meanwhile, just like Evergrande, Wanda’s governance is getting murkier. Its more indebted parent, Dalian Wanda Group, has been tapping into the shopping mall operator’s cash pile. Account receivables from its parent’s property development affiliate increased more than five times to 13.6 billion as of the end of 2022, from 2.1 billion six months earlier. Moody’s Investors Service downgraded Wanda’s credit rating last month, citing increased related-party transactions as one of the rationales. 

Asset sales may also not proceed as smoothly as founder Wang Jianlin would like. Bloomberg News reported that Wanda was weighing the sale of as many as 20 shopping malls in wealthy areas of China, such as Shanghai and Zhejiang province. But according to Caixin, some properties can’t be divested all that easily, because of minimum holding periods Wanda had agreed to at the time of land purchases.

Granted, Wang has a stellar track record of corporate turnaround. In 2017, along with HNA Group Co. and Anbang Insurance, Wanda was swept away by Beijing’s crackdown on their global shopping sprees. Wang managed to save Wanda from bankruptcy by quickly selling his hotels to Guangzhou R&F Properties Co. and his tourism and theme-park projects to Sunac China Holdings Ltd. in a deal that brought in $9.4 billion. Having done it once, one might imagine Wang is more resolute than Evergrande’s Hui Ka Yan in parting with his most-prized assets.

Nonetheless, Evergrande and Wanda share many common traits. Both are in sunset industries, opaque governance offers little protection for investors, and asset sales can be lengthy. But most importantly, the two developers are committing what the Chinese nowadays call “the original sin,” in that they are private enterprises operating in an environment that prizes state-owned businesses. To survive this round of liquidity scare, Wang will need more resolve and finessing than in 2017.

More From Bloomberg Opinion:

• $10 Billion China Property Bond Defaults Are Looming: Shuli Ren

• The Luxury Party Isn’t Taking Off in China: Andrea Felsted

• China’s Latest Developer Rescue Plan Is Rubbish, Too: Shuli Ren

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. A former investment banker, she was a markets reporter for Barron’s. She is a CFA charterholder.

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