(MENAFN- Gulf Times) Dalian Wanda Group Co's biggest unit had its credit rating cut to junk by S & P Global Ratings, raising the risk of higher borrowing costs overseas just as the Chinese conglomerate grapples with greater regulatory scrutiny.
S & P lowered Dalian Wanda Commercial Properties Co to two steps below investment grade at BB, from BBB-, citing uncertainty concerning its business model after asset sales. Wanda agreed in July to sell the bulk of its theme parks and hotel assets to Sunac China Holdings Ltd and Guangzhou R & F Properties Co. Wanda Commercial's dollar bonds due in 2024 dropped the most in a month.
'We expect Wanda Commercial's market position in its property development segment to weaken following the transition, said S & P. Wanda Commercial delisted from the Hong Kong stock exchange in September 2016, with the aim of eventually re-listing in China. 'The prospects of the company's A-share listing are unclear, and information risks have heightened.
The downgrade, which could make it costlier for Wanda to borrow money overseas, is the latest setback for billionaire Wang Jianlin. His companies have been selling assets, delaying or shelving deals amid scrutiny from Chinese authorities, who are clamping down on capital outflows. In the past couple of months, Wang agreed to sell most of Wanda's hotels and theme-park assets for 63.75bn yuan ($9.6bn) and scrapped plans to buy a plot of land in central London.
The uncertainty over Wanda Commercial's business model following its abrupt decision to sell the bulk of its property development projects and hotel portfolio was cited by S & P as a reason for the cut.
'We can't rule out perhaps there is a little bit of policy pressure, I suppose the group company being flagged as one of the more aggressive companies in terms of its overseas expansion, Cindy Huang, director for corporate ratings at S & P, said on a call yesterday.
Wanda Commercial couldn't immediately comment when contacted by phone about the downgrade.
Dalian Wanda Group the parent of the property subsidiary is among firms including Anbang Insurance Group Co, Fosun International Ltd and HNA Group Co that have faced increased scrutiny from the Chinese government on their overseas investments, as authorities try to slow capital outflows to prevent the yuan from weakening.
'We agree with S & P there are too many uncertainties in relation to Wanda's strategic change and no clear picture of its future plan, said Chuanyi Zhou, a credit analyst in Singapore at Lucror Analytics. 'Not to mention the possible non-business risks. The borrowing cost is likely to be higher.
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