China’s Fosun on travel shopping spree

Club Med’s owner considers an IPO to help fund expansion in China, its second biggest market for sales. Sally White reports

Will China’s largest private conglomerate, Fosun, spin off its global travel business in an IPO? The fact that it has said this is an option is no guarantee that it will happen. Yet the Club Med owner has enjoyed such a mega buying binge over the last few years that it needs to raise money. Debt is now 115 billion yuan (around $17 billion) and has become a problem.

Rating agencies Moody’s and S&P have put Fosun bonds’ status down at junk level. So Fosun has announced that is looking to raise 40 billion yuan ($6 billion) to improve its credit rating one way or another. The IPO is certainly a possible move, says Bloomberg, quoting the CEO of flagship unit Fosun International, Liang Xinjun.

“We will sell assets to repay debts,” Liang said in an interview on Bloomberg Television earlier this month.  “We have ample capability to get investment grade ratings. So either strategically, or tactically, Fosun is crystal clear that this has become our strategy.”

Travel is one of the four business legs in the group’s growth strategy, so an outright sale is certainly unlikely. No doubt the IPO decision rests firstly on investor interest and secondly on how much money the group can raise by selling off parts of its non-core businesses - such as steel, mining and property. There is also 102 billion yuan, according to Bloomberg, parked in bonds and shares

The travel division has been building nicely since Fosun made its first step into tourism in 2010. Internationally, Fosun’s portfolio includes theatrical producer Cirque du Soleil. Club Med, fully acquired last year for €960 million has since been expanded in China with four new resorts.

Fosun’s website presentation says that “Club Med plans to open 15 more resorts in China in the next five years to make the total number of its resorts to reach 20.” It adds that China has become the second largest country for clients for Club Med. China has also become Club Med’s second biggest market in terms of sales and remains to be the fastest growing market with annual growth rate exceeding by 20%.

China has also become Club Med’s second biggest market in terms of sales and remains to be the fastest growing market with annual growth rate exceeding by 20%

Other Fosun investments include a stake in Thomas Cook. Last year Fosun took a 5% stake, but upped this to 8.2% as sterling fell on the Brexit vote.

There is also a new 807-apartment and 187-villa resort at Sanya, off the southern China coast, which will be opened next year after an 11 billion yuan investment. A second China ski resort will be opened at the end of this year.

Earlier this month (05.08) Thomas Cook announced a plan to buy 50 hotels and resorts around the Mediterranean in a deal with Fosun. Destinations will be Spain, Greece, Cyprus and Turkey. Fosun will provide the money and Thomas Cook will manage the properties under its existing hotel brand names.

Another possible Fosun move could be the purchase of Apple Leisure Group (ALG). Reuters said last month that Bain Capital Private Equity was checking out interest in ALG after approaches from Fosun and another Chinese conglomerate, HNA Group (which agreed in April to buy Carlson Hotels).

Debt worries or not, while Fosun may have slowed its drive for acquisitions, there is no stopping its entrepreneurial forays altogether. It will “look  for more opportunities” in the market volatility post Brexit, the company's billionaire co-founder and chairman Guo Guangchang  told a Reuters Newsmaker event audience at the end of June.

"For a value investor, volatility is a friend not an enemy. Market volatility and panic will probably bring better investment opportunities. So we are increasingly looking for development opportunities in Europe, and particularly in the UK," said Guo, who is said to be worth $5.3 billion and ranked at No.19 on the Forbes China Rich list last year.

Wang Qunbin, Fosun’s president said last month to Bloomberg that the group wants to grow into an empire with a market value of $100 billion, though he didn’t say when. Currently the market capitalisation of Fosun-controlled companies totals around $26 billion, so there is a long way to go yet.

And the board is very clear on its acquisition strategy - it will limit them to industries it defines as "health, wealth and happiness," according to Liang. Recently, says Bloomberg, it agreed to buy Indian drugmaker Gland Pharma through its pharmaceutical unit (health), offered to invest in Banco Comercial Portugues SA (wealth) and purchased Wolverhampton Wanderers Football Club (happiness). Looking at the possible travel and leisure shopping list that is out in the market, there seems to be plenty of happiness ahead.

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