1992.HK 0656.HK
Fuson Tourism

The resort operator is being absorbed back into the Fosun group via a buyout offer to minority shareholders, with a focus on China’s domestic travel market 

Key Takeaways:

  • Fosun Tourism’s revenues rose 5.8% in the first half of 2024 to 9.41 billion yuan
  • The parent company is paying a 95% premium over the market price to buy back shares in Fosun Tourism

  

By Lee Shih Ta

After six years as a public company, the Chinese operator of the Club Med chain and other upscale resorts is bidding farewell to the stock market and embarking on a new journey within the Fosun conglomerate.

Fosun Tourism Group (1992.HK) recently announced that its parent company planned to buy back shares in the travel and leisure firm at nearly double the market price for about HK$2.12 billion, sending the stock soaring on the news.

Fosun International (0656.HK), a corporation operating across multiple sectors from health to insurance, will pay HK$7.8 per share, a whopping 95% premium over the pre-suspension price, in a deal giving it a 98.44% stake, with the rest retained by Fosun Tourism. Once the transaction has been completed, the resort operator will delist from the Hong Kong Stock Exchange.

Fosun Tourism shares rocketed on the news, closing with a gain of 80.25% at HK$7.21 on the day of announcement, but still shy of the buyback price.

The company said the change of ownership structure was part of a long-term development strategy and would not affect jobs and employee benefits once the share transfer is completed.

Sagging share price

However, Fosun Tourism has been grappling with competitive pressures in the post-pandemic travel market, while investors have been concerned about the debt load of the wider Fosun group, as we reported earlier this year.

Protracted weakness in the resort operator’s share price and low market liquidity are likely to have spurred the buyout decision. Fosun Tourism traded at an average price of HK$3.71 in the 60 sessions before the announcement, for a market capitalization of just HK$4.6 billion (4.28 billion yuan), less than the sum invested in building up its resort holdings. The Fosun group spent 6.4 billion yuan in 2015 to buy the Club Med chain, and invested another 11 billion yuan in the Atlantis Sanya mega-resort in southern China.

In terms of financial performance, Fosun Tourism’s revenues rose 5.8% to  9.41 billion yuan in the first half of 2024, while profits fell 32% to 472 million yuan from the year-earlier period. Profits dropped from a high base in the equivalent period of 2023 when earnings were boosted by a one-time gain of about 280 million yuan from the sale of the Kemer resort in Turkey and a leaseback deal for Les Boucaniers in Martinique.

The overall weakness of the Hong Kong stock market has played into the company’s share woes, but worries about Fosun International’s debt have also been a major factor. As of the end of June, Fosun International owed 222.3 billion yuan, 52.4% of which was due within one year, exerting strong repayment pressure.

To bridge the gap, Fosun International has been hiving off non-core assets in recent years, sparking periodic market speculation that the listed tourism business could also find itself up for sale.

Fosun International has repeatedly denied any plans to exit the tourism sector, but investors have remained doubtful about its commitment and worried about the prospects for the travel and leisure unit. Against this backdrop, Fosun Tourism shares have tumbled more than 80% from an all-time high of HK$16.21 in 2019 to a record low of HK$3.04 in April this year.

Club Med for southern China

In fact, Fosun has been laying plans to build up the domestic tourism business, with a proposed expansion of its winter sports resort and a blueprint for a new Club Med complex in the Joyview chain offering short breaks for travellers from major cities in southern China.

In November, Fosun Tourism signed an agreement with Shenzhen Dapeng New District and CITIC Group to build a new resort in the Jinsha Bay tourism complex that would be the first Club Med holiday park in the bay area between Guangdong, Hong Kong and Macao.

The company is also seeking to expand its sports and entertainment resort in Suzhou, with the aim of creating the world’s biggest indoor ski complex. A deal for Phase Two of the Taicang Alps development was signed in June in a project funded by the local government and managed by Fosun Tourism.

Plans are also afoot to extend the holiday and entertainment facilities around Fosun’s Atlantis Sanya resort on Hainan Island. At a launch event in October, Fosun International Chairman Guo Guangchang said the “Super Mediterranean” project reflected the firm’s intent to explore the cultural tourism industry.

All of these initiatives suggest Fosun is doubling down on the holiday business within China rather than seeking a complete retreat from the tourism sector.

The buyout price is almost double the market rate before the announcement, but in practice the offer will only apply to shareholders who independently own about 20% of the shares. With Fosun International and Fosun Holdings already holding 79.35% of the shares in the tourism company, the total buyback will cost the group about HK$2.12 billion in total.

Meanwhile, a strategy of focusing on core businesses and offloading other assets has been chipping away at Fosun International’s debt mountain. The firm’s adjusted ratio of total debt to total capital has been on a downward trend, falling to 50.2% for the first half of 2024 from 54.3% in 2020. At the same point, cash, bank balances and time deposits together amounted to 109.55 billion yuan, an increase of around 17.1 billion yuan from the end of 2023.

Fosun International has also returned to the offshore bond market, issuing dollar-denominated debt in November for the first time in three years and attracting orders of more than $1.2 billion. S&P Global Ratings affirmed its stable outlook on the firm’s debt, saying the move had widened the group’s financing channels and the investor response reflected its improving credit conditions.

After its recent efforts, Fosun International has the resources to support its core business. Meanwhile, Fosun Tourism could enjoy more flexibility to respond to market changes as a closely held company, and may find room for growth.

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