Exit pursued by bears

Wanda trades places in $4-billion property buyout

Prime financial real estate has lost its charm for Wang Jianlin. The Chinese cinema-to-hotels tycoon wants to delist Dalian Wanda Commercial Properties, the flagship commercial property arm of his Wanda empire, less than 16 months after taking the company public. Wang no doubt has a grand plan. Independent investors in Hong Kong only play a bit part in it.

Wang would at least match the price at which Wanda's property unit sold shares to investors back in December 2014. At HK$48 per share, implying an enterprise value of 301 billion yuan ($46.6 billion) it would cost just over $4 billion to buy all of the outstanding Hong Kong shares, which account for almost 15 per cent of the total outstanding. Investors who bought in at the initial public offering would have seen a total return of 1.8 per cent - better than the 4.7 per cent they would have lost on the Hang Seng Index, but hardly great.

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It is easy to see why Wang, whose Dalian Wanda Group owns 44 per cent of the company through unlisted shares, might want to beat a retreat. The property group's shares have traded below their initial public offering price for roughly half the time since they debuted. Last month, it stopped buying land for homes and offices amid chronic oversupply in smaller cities where 38 per cent of its land bank sits. Big ambitions to roll out another 50 shopping malls this year in China look like the kind of thing that would make public-market shareholders nervous.

A delisting, though, is not necessarily the end of public life. Wang may be eyeing higher valuations on the mainland. The A-shares of rival China Vanke, for example, trade at more than a 50 per cent premium to the same company's shares in Hong Kong. Wang was already planning to raise around $2 billion through an additional listing of shares in his property arm in Shanghai.

Wang didn't get where he is today without knowing how to trade. Take the group private at the same price at which it listed, and based on Eikon estimates of 47.2 billion yuan of operating profit in 2018, and a 26 per cent tax rate, the annual post-tax return for theoretically buying the whole thing out would be 12 per cent. Investors in Hong Kong could hope Wang will give them a bit more; they can't hope to be part of his grand plan.