Fosun International: the slim-down must go on till debts paid off

The conglomerate is selling its stake in multinational insurer Ageas, extending a slimming exercise touched off by a liquidity crisis in 2022 

Key Takeaways:

  • Fosun International’s total debt-to-capitalization ratio stood at 50.4% at the end of last year, down 2.9 percentage points from the previous year
  • The company recently announced the sale of most of its stake in Belgian insurer Ageas, and has raised 57.3 billion yuan from similar asset sales over the past two years

Li Shih Ta

After years of mining the globe for assets, conglomerate Fosun International Ltd. (0656.HK) has shifted into a new phase as it tries to find the right balance between its large stable of myriad businesses and a suitable level of debt. In the latest of its recent spree of asset sales to reduce that debt and focus on its core areas, the company announced last week it was selling 8.19% of its stake in Belgian insurer Ageas. 

“We used to prospect and mine the world,” said Fosun Chairman Guo Guangchang at his company’s annual results conference late last month. “But now we have enough good resources in areas where we have an advantage.”

Fosun International’s latest asset sale will see it sell the 8.19% in Ageas to a unit of French banking giant BNP Paribas for a total consideration of 626 million euros ($667 million) to 670 million euros. The transaction is expected to bring the company a pre-tax profit of 60 million euros to 65 million euros, and will still leave Fosun as a small shareholder in Ageas with a stake of just over 1%.

The deal marks Fosun’s second sale of a major financial asset this year, following its sale of 5.6% of Banco Comercial Português in January for 235 million euros. That sale still left Fosun with more than 20% of the bank’s shares. Reports emerged last month that it would also like to sell that remaining stake, which is worth about 840 million euros, though no deals have been announced.

From shopper to slimmer

Fosun International has shifted from its former status as a “crazy shopper” to the current “slim-down” mode ever since being put on a watch list for a possible downgrade by Moody’s in 2022. The company’s list of other asset sales includes stakes in Nanjing Iron and Steel, Tianjin Jianlong Iron & Steel and Ameritrust Group. It recovered 27.3 billion yuan in cash last year, and together with another 30 billion yuan in cash the year before that, has recovered a total of 57.3 billion yuan ($7.9 billion) in cash over the past two years.

The sales are making a significant dent in Fosun’s financial burdens. The company had 211.9 billion yuan in interest-bearing debt at the end of last year, 15 billion yuan less than a year earlier. And its latest total debt-to-capitalization ratio was 50.4%, down 2.9 percentage points from a year earlier. Fosun International previously announced last August that it was no longer under pressure to repay large amounts of U.S. dollar debt in the next 12 months. As its situation improved, S&P Global upgraded the company’s outlook to “stable” in mid-2023.

The company’s medium- and long-term debt as a percentage of total debt increased to 55% at the end of last year from 53.2% at the end of 2022. Its short-term debt, defined as that maturing within 12 months, decreased to 95.4 billion yuan from 106.3 billion yuan over that period, though the latest figure is still higher than the company’s 92.5 billion yuan in cash at the end of last year.

Business stabilizing

While the slim-down is making progress, it hasn’t shown signs of ending just yet. Reuters reported last month that Fosun International was considering selling some or all of its Atlantis Sanya mega-resort as well as part of French resort operator Club Med, which are both owned by its Fosun Tourism (1992.HK) affiliate. We should note that both of those earned record revenue last year and are considered important money spinners for the company, though Fosun International has yet to specifically comment on whether it might sell those assets.

Fosun International reported total revenue of 198.2 billion yuan last year, up 8.6% year-on-year, with a profit of 1.38 billion yuan, reversing a loss of 830 million yuan in 2022. Its four core subsidiaries Yuyuan Inc., Fosun Pharma (2196.HK), Fosun Tourism and Fosun Insurance Portugal, all reported solid revenues, contributing 72% of its total revenue. That shows its core business are performing relatively well.

A report released by Citi this month said profitability of the company’s asset portfolio has improved, leading to a narrowing of losses in its asset management segment. Citi added that most of the negative factors facing the company have been reflected in the stock price, but still lowered its target price from HK$7.10 to HK$6.30, maintaining an “overweight” rating.

Strategic tie-ups

While it may be selling assets, Fosun International has also continued making strategic moves in medicine and tourism, two areas that it considers its core focuses. Last July, Fosun Pharma signed a strategic cooperation framework agreement with Shenzhen’s Pingshan District to build a Fosun Pharma Headquarters in South China’s Greater Bay Area, becoming the company’s second base outside of its home in Shanghai.

And last month, Fosun Pharma and seven other investors proposed setting up a 5 billion yuan biomedical fund. Earlier this month, the Shenzhen municipal government and Fosun High Technology signed a strategic cooperation framework agreement focused on strengthening cooperation in the fields of biomedicine, culture, sports and tourism, and fashion consumption in the southern Chinese boomtown next to Hong Kong.

In terms of tourism, Fosun Tourism Chairman Xu Xiaoliang recently revealed that he is actively planning his first “Super Club Med” project in Hainan with an aim of creating more world-class tourism products to promote China’s local tourism industry.

After nearly two years of aggressive slimming, Fosun finally seems to have eased market concerns about its debt. Its current price-to-earnings (P/E) ratio is about 23 times, much higher than the 5.8 times for CK Hutchison Holdings (0001.HK) and the 3.3 times for Shanghai Industrial Holdings (0363.HK), two other conglomerates, showing the market may have regained some confidence in the company.

Speaking at an entrepreneur convention earlier this year in Shanghai, Guo Guangchang indicated the worst may be behind for his company. “The difficult times are in the past, and as long as there’s life there’s hope,” he said. “After making it through such rough waters, Fosun International will be able to sail towards a brighter future.”

That said, many still expect Fosun International to sell another 20 billion yuan to 30 billion yuan worth of non-core assets this year, which will further help to ease its debt load. That could give the company more breathing room in an “asset light” future anchored by a few core businesses.

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