China Tells Banks to Report Exposure to Conglomerate Fosun

Bloomberg News Tue, September 13, 2022

(Bloomberg) -- Chinese authorities have told the nation’s biggest banks and state-owned  firms to start a round of checks on their financial exposure to Fosun, one of the country’s  largest non-state conglomerates, according to people familiar with the matter.

Multiple regulators including China’s banking watchdog and the local commission that oversees state investments in Beijing recently told institutions under their oversight to closely examine their Fosun exposure, said the people, asking not to be identified as the matter is private.

Fosun -- whose businesses span everything from Club Med to French fashion house Lanvin and the exclusive distributor of BioNTech SE’s Covid vaccine in Greater China -- didn’t receive any notice from authorities about the requests, a representative for the group said in a statement to Bloomberg. A subsequent query to the Beijing state asset regulator found the practice is part of its normal research and previously involved other companies, the representative said, adding that the group’s operations remain healthy and resilient to challenges.

Dollar bonds guaranteed by Fosun International Ltd., the group’s flagship, were on pace for their biggest declines since June as they dropped as much as 9 cents, according to prices compiled by Bloomberg. Shares closed down 4.1% in Hong Kong, near their lowest level since 2013.

While the regulators’ moves may not lead to any action, they underscore recent concerns among investors about Fosun’s financial strength. The group, co-founded by tycoon Guo Guangchang in 1992, was once among the nation’s most-prolific overseas acquirers but has seen its shares and dollar bonds tumble in recent months amid a record wave in defaults by Chinese borrowers. Fosun entities disclosed plans earlier in September to pare their stakes in the group’s publicly listed tourism and pharmaceutical units.

One person said Fosun is taking steps to dispose of assets for debt repayment. Cash holdings for Fosun International were 117.7 billion yuan ($17 billion) as of June 30 and total liabilities were 651 billion yuan, 40% of which was interest-bearing borrowings, according to its first-half report.

A Fosun onshore entity said Tuesday that all holders of a 2 billion yuan bond have requested early redemption of the note, with payment due on Friday.

Meanwhile, Guo said in a social-media post following visits to more than 20 countries that many of Fosun’s overseas units are now doing better than before the pandemic.

The China Banking and Insurance Regulatory Commission recently requested that commercial banks check their exposures to Fosun debt and understand potential liquidity risks, said two of the people familiar with the matter. Such action by the regulator doesn’t mean it wants lenders to change their financing toward Fosun, including outstanding loans, the people added.

The Beijing branch of the State-owned Assets Supervision and Administration Commission asked local state-owned enterprises for details about their links to the Fosun group that include stock holdings, debt lending and guarantees, according to the people. They said the SASAC makes such information requests regularly to check on and understand firms’ risks, and that there’s no current plan to restrict SOE dealings with Fosun.

The CBIRC didn’t reply to requests for comment. Several calls to the Beijing SASAC went unanswered.

Moody’s Investors Service last month downgraded Fosun International, saying that asset sales would likely cut the size, diversification and transparency of the firm’s investment portfolio. Dollar bonds guaranteed by the company have been among China’s worst-performing high-yield notes the past three months according to a Bloomberg index. Longer-dated bonds are below 60 cents on the dollar, prices which typically signal distress.

Fosun in 2017 was among firms scrutinized by China’s banking regulator about overseas loans. The People’s Bank of China identified Fosun International -- along with China Evergrande Group and HNA Group Co. -- in 2018 as de facto “financial holding companies” that formed cross-border and cross-business alliances with accumulating risks.