DALIAN, China/SHANGHAI — Dreams of creating a global entertainment empire have driven China’s Dalian Wanda Group to the brink of another crisis, this time from the coronavirus shutting movie theaters worldwide.
Crowds were sparse recently at Wanda Plaza on the outskirts of Shanghai, usually a top earner among the group’s roughly 320 commercial complexes nationwide.
“We have 20% to 30% of our normal customers,” one employee said.
Many tenants were still open. But the mall’s crown jewel, a Wanda Group movie theater, has been forced to close along with China’s other cinemas as part of the government’s response to the coronavirus outbreak.
Wanda faces headwinds overseas as well. American unit AMC Entertainment said March 17 that it will close the company’s roughly 630 cinemas in the U.S. for up to 12 weeks. Media reports say AMC is in talks with bankruptcy lawyers.
Movie theaters are being urged to close in Europe and Australia, a blow to Wanda’s businesses there as well.
The severity of Wanda’s cash crunch was apparent from its decision to sell World Triathlon, organizer of the Ironman triathlons, at the end of March.
“It really got beaten down on price,” one M&A consultancy executive said of the $730 million deal.
Wanda hoped to sell the U.S. triathlon unit for around $1 billion, Bloomberg reported. But the valuation suffered as races were canceled worldwide due to the coronavirus. Yet Wanda really needed the cash, said Brock Silvers at Hong Kong-based Adamas Asset Management.
Founded in 1988 as a property developer, Wanda expanded into a range of businesses as China’s economy grew. It acquired AMC in 2012 for $2.6 billion, and spent a total of $20 billion on an aggressive acquisition campaign over five years.
Wang Jianlin, the group’s founder and chairman, was particularly enthusiastic about the movie business. He has built more than 600 cinemas at Wanda malls to attract customers. Combined with acquisitions in the U.S. and Europe, Wanda in 2016 became the world’s largest movie theater operator by number of screens.
The group hoped eventually to become the world’s movie king, with top market shares in producing, distributing and showing films. Wang said publicly he would challenge Hollywood’s “Big Six” distributors, such as Walt Disney, and was constantly rumored to be negotiating further acquisitions.
But Wanda’s fortunes took a sharp turn in summer 2017. The acquisition campaign drove the group deep into debt, and a concerned Chinese government told banks to stop lending to Wanda and four other leading companies investing heavily overseas.
This sent Wanda scrambling to reduce debt. The group unloaded over 130 billion yuan of assets ($18.4 billion at current rates) in a year and a half, including hotels and theme parks in the midst of construction.
Wanda did not part with its malls and movie theaters, hoping their synergies would help the group get back on its feet. But China’s consumer spending, which once grew at a double-digit clip, began slowing considerably last year.
Though Wanda does not publish specific numbers on group performance or debt, its top three units owed roughly 350 billion yuan at the end of September, according to corporate database Tianyancha. At least 40 billion yuan of corporate bonds reaches maturity between March and November of this year.
The Chinese group also is temporarily waiving rents for its mall tenants, resulting in a 4 billion yuan loss. Wanda could be forced to dump more assets to pay off debt and make up for plunging earnings, Adamas’ Silvers said.
Back in 2017, Wanda overcame its challenges partly through investments from Chinese internet giants like Alibaba Group Holding and Tencent Holdings. The group faces a narrower set of options for recovery this time around.