China Fosun finds secret sauce to make foreign deals palatable

Photo: Reuters

Pssst: There’s apparently a secret to pushing through overseas deals despite Beijing’s ban on some international investments by Chinese companies. And Fosun International Ltd. has found it.

At least that’s what executives indicated Thursday during a semi-annual earnings presentation for the Shanghai-based conglomerate, which started as a market researcher and pharmaceutical maker and now owns 300 businesses including Club Med SAS and Cirque du Soleil Inc.

While the company reduced leverage to the lowest point in at least five years — bringing net debt to equity down to 47.4 percent in the first half — Fosun laid out plans to push it back to around 60 percent. With IPOs planned for six companies in the portfolio, more cash is on the way.

In other words, Fosun is ready to start buying again. Or shifting up a gear, anyway, since it’s unclear if the conglomerate ever really stopped buying.

It’s been puzzling to watch what’s happened since Fosun was among four prolific dealmakers said to be under review by China’s regulators over irrational investments and excessive debt.

Anbang Insurance Group Co. was subsequently told to sell flashy overseas assets like New York’s Waldorf Astoria Hotel. Dalian Wanda Group Co. had to relinquish parts of its property and theme-park business to competitors. HNA Group’s banks in China stopped making new loans to the part-owner of Hilton Worldwide Holdings Inc. and Deutsche Bank AG.

Yet Fosun went unscathed.

Sure, Chairman Guo Guanchang served his time in China’s version of after-school detention, disappearing without warning in December 2015 to assist a government investigation. He lost some lieutenants and has been subject to plenty of rumors.

Since then, though, Guo has been clever in his choice of targets.

In its two most recent acquisitions — of a French margarine maker, St Hubert, and a Russian gold producer, Polyus PJSC — Fosun invested alongside state-owned enterprises, including a dairy company, Beijing Sanyuan Goods Co., and a gold smelter, Zhaojin Mining Industry Co.

Guo played down the wealth-management, insurance and property parts of his conglomerate, emphasizing instead health, consumer and industries that Beijing placed in the “encouraged” buckets — technology, agriculture and mining.

He may have also temporarily slowed some dealmaking, as the chart below suggests.

Guo might not yet be totally in the clear. But he answered questions about M&A with laughter and smiles while executives emphasized that dealmaking will go on, suggesting Fosun is either cheerfully ignoring the Beijing crackdown — or has worked out the secret to playing by the rules.

Nisha Gopalan assisted with this column.

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Bloomberg