Fitch Ratings has downgraded the long-term corporate credit rating of China’s largest commercial property company, Dalian Wanda Commercial Properties.
The China Dalian Wanda Commercial Properties Foreign Currency Long-term Issuer Default Rating (IDR), Wanda’s senior unsecured rating, outstanding senior note rating, and outstanding bonds issued by Wanda’s subsidiaries have all been lowered to BBB from BBB+.
Fitch expects that Wanda’s contracted sales on development properties will drop to CNY100 billion in 2016 from around CNY164 billion in 2015, mainly due to the company’s large presence in tier-3 and tier-4 cities, which have “high excess inventory.” The continued expansion of Wanda’s property investment business will put an additional burden on its debt.
Wanda’s financial profile could start to improve by the end of 2017, as the company increases its property investment capabilities, in part by shifting its business model to rely on third-party capital for the funding the majority of its future mall expansions. (Wanda has done this before, having used a mix of crowdfunding and institutional capital to fund the cost of 15 new malls in addition to 28 self-funded malls, in 2015).
However, sourcing these funds could prove difficult given the long gestation period for new malls, which may not be attractive to institutional investors, Fitch noted. And unless the company is successful in sustaining an external funding model or scales back on property expansion, its rating could suffer further.