Massive fire sale as debt contagion spreads to China's Warren Buffet, US curbs on PRC capital flows "on horizon" & WSJ reveals how Meng-Two Michaels prisoner swap went down -- China Boss News 10.31.22
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Massive asset sell-off as debt contagion spreads to China's "Warren Buffet"
“The debt crisis that roiled China’s real estate market has spread to one of the country’s largest conglomerates,” Forbes’ Yue Wang last week reported. “Fosun, owner of an English Premier league soccer team, Portugal’s largest bank and Club Med, can no longer raise capital so it must sell off assets before it defaults on its short-term debt,” she said.
Wang, Forbes:
Guo Guangchang, the billionaire cofounder of Chinese conglomerate Fosun, likes to say that he emulates Warren Buffett by following the same investment strategy of using the steady cash flow from insurance firms to acquire other businesses. It enabled him to build Shanghai- based Fosun into an eclectic empire that includes Wolverhampton Wanderers from the English Premier League, Portugal’s largest bank Millennium BCP, as well as French fashion house Lanvin and resort owner Club Med.
But now, Guo is struggling with a problem 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, saw his flagship investment arm Fosun International downgraded by the rating agencies deeper into junk territory.
A Forbes graphic showed that Fosun has already divested "at least $3.2 billion" of assets, including those of the Fosun Tourism Group, Floow, Jinhui Liquor, Besino Environment, Tsingtao Brewery, AmeriTrust Group, and Lanvin Group. Those sell-offs predated announced plans “to dispose its entire 60% stake in the the parent of Shanghai-listed Nanjing Iron & Steel to Jiangsu Shagang Group for no more than $2.2 billion," Wang said.
Lucror Analytics’ credit analyst Trung Nguyen said Fosun’s situation was so “dire” that “it doesn’t matter whether it is making a loss or profit [from asset sales].” “Whichever asset has liquidity, they would be looking to sell,” Nguyen noted.
Wang, Forbes:
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—outstripping its cash and cash equivalents of just $16 billion. Fosun International’s “elevated refinancing pressure” and “less than adequate” liquidity were the factors that spurred both Moody’s Investors Service and S&P Global Ratings to downgrade the company in August and September, respectively.
Emphasis added.
Analysts are also worried that Fosun International may have "guaranteed" the liabilities of its "deeply indebted" subsidiaries.
Forbes:
If its subsidiaries default or eventually face liquidation, then Fosun faces the difficult choice of whether or not to bailout. “Right now it doesn’t have the money to stage a rescue,” says [Shen Chen, a partner at Shanghai Maoliang Investment Management]. “But if it chooses to sit back then the assets would just be gone.”
For the rest of Yue Wang’s stellar Forbes report on Fosun’s troubles, Fire Sale! China’s “Warren Buffett” Races To Sell Assets, click here.
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“US restrictions of capital flows into China are on the horizon,” expert says
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