Club Med owner Fosun nears deal to sell stake in Nanjing Iron & Steel for US$2.1 billion, source says

Fosun International holds a 58.92 per cent equity interest in Shanghai-listed Nanjing Iron & Steel
Fosun is close to finalising a deal with Jiangsu Shagang Group, a source said

Bonds

Pearl LiuandPeggy Sito

Published: 6:30pm, 17 Oct 2022

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Fosun International, the owner of the Club Med chain of resorts, is reportedly selling its stake in Nanjing Iron & Steel for 15 billion yuan (US$2.1 billion), as the heavily indebted group seeks to raise cash to trim its borrowings.

Fosun is selling its assets in Nanjing Iron & Steel to Jiangsu Shagang Group, according to a source close to the deal. The two sides are finalising the agreement, the person added.

Trading in shares of both Fosun and Nanjing Iron & Steel was suspended on Monday, pending announcements involving inside information, according to exchange filings. No other details were disclosed.

Fosun, Nanjing Iron and Jiangsu Shagang did not reply to requests for comment.

Guo Guangchang co-founded Fosun Group in 1992. Photo: Edmond So

The transaction could fetch 15 billion yuan, Chinese media Caixin reported on Monday.

Fosun International holds a 58.92 per cent equity interest in Shanghai-listed Nanjing Iron & Steel through a joint venture formed with Chinese state-owned enterprise Nanjing Iron and Steel Group in 2003.

Nanjing Iron & Steel recorded a 44 per cent increase in net profit to 4.09 billion yuan in 2021, according to its annual report.

Fosun’s bonds got a boost on Monday. Its senior notes maturing in July 2023 rose to 50.78 cents on the dollar from 50.54 cents on Friday, while another bond due in 2024 climbed to 38.22 cents from 37.58 cents on Friday.

The proposed sale follows recent reductions in Fosun’s holdings in various businesses, including its flagship pharmaceutical and tourism units, as the company attempts to raise money and repay its debt.

Last quarter, credit rating companies downgraded Fosun International’s creditworthiness deeper into junk territory as a large amount of debt matures while its funding avenues narrow.

Moody’s Investors Service cut its rating by one notch to B1 on August 23, citing concerns about its liquidity.

S&P Global Ratings lowered its rating a notch to BB- on September 16, based on a similar view.

Club Med’s owner Fosun denies it is under regulators’ debt scrutiny

Fosun International had 117.7 billion yuan in cash or cash equivalent on June 30, according to its latest accounts. Its total liabilities amounted to 651 billion yuan, of which 40 per cent were interest-bearing borrowings.

It had 28 billion yuan worth of bonds and 33 billion yuan of bank loans maturing between July 2022 and June 2023, according to S&P.

“[The company] faces narrowing liquidity headroom and a shortening debt maturity profile amid hurdles to access both onshore and offshore bond markets and macroeconomic uncertainty,” S&P said. Fosun has the ability to monetise its large and diversified portfolio, “but adverse capital market sentiment could erode asset valuation”, it added.

Fosun was co-founded by tycoon Guo Guangchang in 1992, starting off as a consumer-focused group before a debt-funded acquisition binge at home and abroad added pharmaceuticals, real estate, tourism and finance to the fold. Some bets, such as Cirque du Soleil, have since folded following the Covid-19 pandemic.

Moody’s said Fosun faces elevated refinancing pressure, on top of potential contagion risk from weak subsidiaries exposed to the Chinese property market.