The Chinese debt crisis that hit that country’s real estate market hard has now impacted one of China’s biggest conglomerates, Fosun, reports an article in Forbes. Guo Guangchang, Fosun’s co-founder who likens himself to Warren Buffett, expanded the conglomerate to include an English Premiere League soccer team, Portugese bank Millennium BCP, French fashion brand Lanvin, and resort giant Club Med. But the company is now relying on substantial loans in order to continue its buying spree, provoking concern that its too cash-poor to cover any short-term liabilities. In fact, Fosun’s investment arm was downgraded well into junk territory by both S&P Global Ratings and Moody’s Investor Service, and its dollar bonds have plummeted to new lows, with the 5.05% note, paying out in 2027, trading at a slim 32.7 cents on the dollar.
Large borrowers like Fosun lost their access to funding after major real estate developers in the country, such as the China Evergrande Group, started defaulting on their loans, sending bond investors fleeing. And the government is pouring funding into green energy and tech. Without those lending resources, Guo has had to sell off many of his highly-prized assets at a discount, such as a 2% stake in Fosun Tourism, which owns Club Med, and its entire 60% stake in Nanjing Iron & Steel for $2.2 billion. Forbes reports that Fosun currently holds about $90 billion in total liabilities, up 8% from 2021. Meanwhile, shares have fallen nearly 50% over the last 12 months, hitting a 10-year low, and Guo’s personal wealth has decreased two-thirds from $6.9 billion in 2021 to $2.5 billion this year.
Fosun splits its businesses into three categories—happiness, health, and wealth—but none of the categories have escaped unscathed from the sell-off. Earlier this year, it sold off U.S. insurance group AmeriTrust for $740 million, as well as its 0.89% stake in New China Life Insurance, whose shares have dropped 33% since 2016. And Covid lockdowns have hit the conglomerate’s retail and tourism divisions hard. But Guo insists that the company isn’t as bad off as it seems; the 650 billion yuan in total liabilities it owes includes consolidated debt, which it doesn’t have to repay, and Guo recently threatened suit against Bloomberg for an article it published claiming Chinese authorities warned state-owned firms about too much exposure to Fosun. Still, many analysts say the company is deeply in debt, perhaps far more than its balance sheet shows, and if its subsidiaries default, Fosun, which declined to comment to Forbes, may be forced into a bailout.