Fosun: sell the trophy assets first
Data suggest the highly indebted Chinese conglomerate is in a bad place
Fosun is showing signs of stress. The highly indebted Chinese conglomerate has alarmed investors with one of its entities planning to cut its holding in a core healthcare unit. It has followed up by saying it will file a lawsuit against Bloomberg. The bone of contention was a news report alleging that regulators asked some lenders and state-owned companies to examine their exposure to Fosun.
Shares plunged then rallied after Fosun denied the report, which it said had “seriously misled investors”. But the spat between the business and the media group changes nothing financially. Data suggest Fosun is in a bad place.
Hong Kong-listed shares have nearly halved in the past year to a decade low. Some of its offshore bonds have fallen below 45 cents on the dollar.
The group owns a sprawl of businesses from French resort group Club Med to English football club Wolverhampton Wanderers. Net liabilities make up 83 per cent of Fosun’s enterprise value, according to S&P Global. Bond repayments through next year are expected to be as much as $8bn. Debt has grown amid a drop in earnings, which fell by a third in the first half.
It is equally pertinent to ask how strong the political credit of Fosun is with the Chinese Communist party.
The government has been reining in conglomerates that expanded overseas via takeovers. Deleveraging is a key policy goal. Beijing restricted large overseas investment sprees five years ago, especially in areas such as hotels, entertainment, real estate and sports clubs. These were areas where Fosun had been an active acquirer.
The parallel is with local peers HNA and Anbang. Debt-fuelled foreign acquisition sprees triggered official disapproval. The authorities jailed or detained top executives from Anbang and HNA. The Chinese government seized Anbang in 2018, HNA went into bankruptcy administration last year.
A key differentiating factor between these groups and Fosun is
subsidiary Fosun Pharma. The healthcare unit, which is the Chinese partner of German biotech company BioNTech, posted surging earnings and sales last year on the back of Covid-19 vaccines sales.
The Fosun entity’s plan to cut holdings in this core asset looks like a financial and political mistake. The 3 percentage point reduction in a reported indirect stake of 38 per cent would not be large. But it points to a dangerous direction of travel. Fosun should sell overseas trophy assets first.