Funding For Wanda Commercial By “China’s Bests”
Last week, social media giant Tencent Holdings (OTCPK:TCEHY, OTCPK:TCTZF) led a consortium comprising e-commerce titan JD.com (JD), major retailer Suning Commerce Group, and property developer Sunac China (OTC:SCCCF) to invest $5.4 billion in the commercial property arm of Dalian Wanda Group (OTC:DLWNY) (OTC:DWNDF). The deal is for a 14 percent stake in Wanda Commercial and is aimed at funding the property unit while it works towards its plan to relist in Shanghai.
Three weeks ago, I wrote about the souring of the IBM-Wanda alliance for their cloud business. IBM (IBM) and Dalian Wanda had partnered up to jointly serve the cloud-computing market in China. I had suspected in October that Dalian Wanda might not be able to commit to the cloud partnership as its hands were full with its myriad businesses. Furthermore, its liquidity has become an issue as Wanda’s aggressive acquisitions abroad have invoked the ire of the Chinese government which has turned increasingly concerned that the high debt level of the company might pose contagion risks. In January, Fitch Ratings downgraded Dalian Wanda by two notches to a junk rating. This latest funding round serves to alleviate the cash crunch experienced at the entertainment and property conglomerate. It is also another instance where JD.com is following Tencent’s lead in an investment.
The joint investment is a game-changer for the five parties, which is best justified by JD, which said in a statement that “while Tencent knows people best, JD knows products best, and Wanda knows space best.”
Tencent To Bring Its Mobile Payment Capabilities And Social Media Prowess To The Table
Tencent is the indisputable leader in messaging in China. Its WeChat boasts 800 million monthly active users, while its QQ has 550 million. No other messaging apps in the country come close. Its WeChat Pay is the second-most used mobile payment mode in China. Even Google (GOOG)(GOOGL) has deemed it essential to collaborate with Tencent on future technology developments. The retail malls of Wanda Commercial would benefit greatly from the mobile payment capabilities and social media integration enabled by Tencent’s advanced messaging apps. Tencent would be able to leverage on the brick-and-mortar assets of Wanda Commercial to execute its online-to-offline strategy, without incurring the full capital expenditures (CapEx) if it went alone with its own malls like what Alibaba did (BABA). This is a shrewd move to optimize its CapEx as Tencent is already spending more on CapEx than Alibaba whether relative to their revenues or cash flows.
JD Could Roll Out Its Retail Innovations On Brick-And-Mortar Shops
Similarly, JD would benefit from the access to Wanda Commercial’s properties as it could roll out its retail innovations more readily. After all, Alibaba has invested in a leading hypermarket player in China for an ostensibly similar purpose. Alibaba declared its aim to redefine traditional retail through digital transformation. Alibaba has helped Starbucks (SBUX) to integrate the giant coffee chain’s largest outlet in the world with its scene-recognition technology for an immersive augmented reality (“AR”) experience. However, as Alibaba is Tencent’s arch-rival, it is not expected that the two collaborate to spruce up Wanda’s retail malls for the digital age. Here’s where JD comes into the picture.
JD has in January helped French cosmetics brand Bourjois, which is owned by Coty (COTY), to develop and launch interactive AR features to enhance the experience for the consumers of Coty products who shop on its flagship store on JD.com. In a press release, JD boasted the positive impact that its AR technology has had on sales. JD could follow Alibaba’s footsteps and commercialize its AR technology to the brick-and-mortar stores in Wanda properties.
Max Factor, another iconic brand from Coty, has already enjoyed huge success on JD.com since implementing AR Makeup Technology in September 2017. Sales for many of Max Factor’s products have increased over 100% and conversion rates have also grown significantly.”
Shopping App Powered By JD’s AR Makeup Technology
(Source: JD.com)
Sunac China And Suning Commerce Will Also Contribute
Readers are generally more familiar with Tencent and JD.com. Sunac China is a key player in the property sector in China with a market capitalization of $20.3 billion. Its share price has jumped more than 400 percent over the past one year (based on the shares primarily listed on the Stock Exchange of Hong Kong under the ticker code 1918).
(Source: Google Finance)
Suning Commerce is involved in the brick-and-mortar retail business and so it should come as no surprise that its share price appreciation is the lowest among the four investors named in the transaction. Nonetheless, it is still ranked as the second-largest retailer in China by total net revenue based on FY 2016 figures (see the chart below). Hence, it is expected to bring its substantial clout and value to the table on this deal.
(Source: JD.com)
Conclusion
The joint investment into Wanda Commercial by China’s leading players in their respective fields should lead to a mutually beneficial arrangement. Besides the benefits deriving from their business collaboration, the four parties could enjoy substantial paper gains when Wanda Commercial lists in Shanghai as planned. Investors in JD should be heartened by its involvement in yet another favorable deal led by Tencent.
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