China Blocks Banks From Lending to Wanda for Overseas Deals (Report)

China’s financial regulators have blocked the country’s banks from making loans to Dalian Wanda to finance its foreign acquisitions, including entertainment assets such as Legendary Entertainment, it was reported Monday.

The Wall Street Journal said that banking sector regulators met with executives from large state-owned banks on June 20 and told them that six of Wanda’s foreign acquisitions were subject to capital controls imposed by the government last year.

Separately, it emerged Monday that Standard & Poor’s S&P Global Ratings had downgraded to BBB- its CreditWatch rating for Hong Kong-listed Wanda Commercial Properties, a Dalian Wanda subsidiary.

Sources close to Wanda declined to confirm or deny the existence of the lending ban. But they said that the Journal’s report appeared to be based largely on a single, unverified document circulating offline.

The Journal said it reviewed a document from one of the banks at the meeting. The document probably refers to Wanda’s foreign deals going back about five years, the newspaper said.

During that time, Wanda acquired Legendary, the AMC and Carmike theater chains, and other entertainment-related assets. Most of those deals have already closed, though new financing from China’s banks to service those agreements has apparently been halted.

While it is understood that the more recent acquisition of Odeon & UCI Cinemas Group has been closed and completed, the purchase of Nordic Cinema Group may not yet be finalized. Both of those European deals are being channeled through AMC in the U.S., which is ostensibly beyond the reach of Chinese regulators.

The regulators’ reported crackdown on lending to Wanda casts in a new light last week’s surprise announcement by Wanda that it was selling its theme parks and 70 of its hotels to property developer Sunac China for $9.3 billion. Wanda chairman Wang Jianlin told a Chinese financial journal that “the proceeds from the sale will be used to pay off loans. Wanda Commercial will pay off all bank loans by the end of this year.”

Wanda is not currently expected to make a statement on Monday’s report by the Wall Street Journal. On June 22 the company issued a statement in which it denied online reports that Chinese banks had been ordered to sell Wanda’s bonds and the shares of its listed subsidiaries. Those reports, which Wanda dismissed as “vicious speculation,” caused the shares of its Shenzhen-listed Wanda Film Holding to drop to the maximum of their permitted daily trading range.

Two days later, it emerged that the banking regulator had ordered a probe into bank lending to unlisted parent company Dalian Wanda. The statement has since been removed from Wanda’s corporate website.

In recent days, Wanda has also said that it plans to consolidate its Chinese film businesses within Wanda Film, the company previously known as Wanda Cinema Line. While details are expected to be announced on Aug. 3, it appears that the unlisted Wanda Pictures film production unit would be absorbed into Wanda Film and that loss-making Legendary, based in Los Angeles, would be omitted and remain as part of privately owned Dalian Wanda. Part of the entertainment sector restructuring would also involve the issue of new shares, the company indicated.

S&P explained its downgrade of Wanda Commercial Properties as being related to the theme park sale. “The risks that Wanda Commercial’s unexpected sale of its tourism projects and hotels could weaken its business position and have an uncertain impact on leverage” S&P said.

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