Billionaire Guo Guangchang was sipping baijiu when he decided to kick off a $2 billion sale, his biggest in recent years.
His choice of liquor — from Shede Spirits Co., a brand under his Fosun International Ltd. portfolio — was particularly momentous: “she de” means “let go” in Chinese.
Pummeled by China’s credit crisis and a 95% profit plunge last year, Fosun has offloaded some $4.8 billion of assets since May, including the sale of its holding in the parent of Nanjing Iron & Steel Co. that was renegotiated this month. And the process is far from over: The conglomerate is in search of buyers for billions of dollars of assets ranging from European financial businesses to an Indian pharma firm.
Disposals on such a scale can be a sign that a company is in a death spiral. But Guo’s pragmatism in parting with once-prized companies seems to be working. Fosun’s shares and bonds have rebounded from their September lows, with the conglomerate looking less likely to default, an outcome that once seemed inevitable.
“It’s not pathetic that we are selling assets,” said Guo at an entrepreneur forum in March when he was asked to share how he felt about Fosun’s disposals. “It’s pathetic only if no one wants what we offer.”
Guo, sometimes dubbed China’s Warren Buffett for his historic acumen in picking quality assets and diversifying investments, has been instrumental in the turnaround.
Unlike many tech and property tycoons, who stepped aside or retired when things got tough, Guo has remained at the helm during what he described as the “perfect storm.” Fosun’s co-chairman has attended earnings events, lined up business partners and has posted regularly to his more than 9 million followers on social media.
By contrast, ByteDance Ltd.’s Zhang Yiming, PDD Holdings Inc.’s Colin Huang and Longfor Group Holdings Ltd.’s Wu Yajun are among those who’ve exited the companies they founded. Jack Ma, probably the most famous Chinese businessman, mostly disappeared from public life after his critique of the nation’s regulators in 2020 torpedoed the listing of his Ant Group Co.
Chinese entrepreneurs have faced an increasingly difficult environment in recent years, with regulatory crackdowns in the government’s quest for “common prosperity” constraining growth and repelling international investors.
Guo, who’s been around for more than three decades, is no stranger to run-ins with the authorities. In 2015, he briefly vanished to help with an investigation, similar to the recent disappearance of top financier Bao Fan.
During the current turmoil, however, the company’s focus on navigating government relationships has been notable. In September, its vice president paid a visit to a local supervisor of state-owned enterprises to discuss areas of cooperation.
“Guo Guangchang seems to have survived where many of his former peers have failed for a couple of reasons,” said Brock Silvers, chief investment officer of Kaiyuan Capital in Hong Kong. “Fosun did a better job of using available resources to create viable businesses. When the calls for deleveraging came, Fosun was better positioned to follow the regulatory diktat.”
As the conglomerate was straining under the weight of financial debt, credit bankers and investors rushed to meet Guo when he returned to China after a months-long overseas trip in September. They mostly sought to find out more about his personal fortune and Fosun’s self-rescue plan to decide whether to call back loans, according to people familiar with the matter who asked not to be named discussing private conversations.
Yet Guo had a plan: streamline his businesses. He instructed every executive and business head at the firm to become a salesman, the people said.
Fosun has already offloaded stakes in a Chinese insurer, a mining firm and a utilities company. Assets worth more than $3.7 billion are still up for sale, according to data compiled by Bloomberg.
Fosun now looks like it's among the rare soft-landing cases in this credit crisis. One of its major units secured a 12 billion yuan ($1.7 billion) loan from eight banks earlier this year.
A Fosun representative said the group will keep selling assets to focus on core businesses in the household consumption sector.
While Fosun’s shares have rebounded from their lows — with Guo’s fortune rising about 60% since September to about $1.6 billion, according to the Bloomberg Billionaires Index — there is a long road ahead. The shares have slipped from a high at the end of January along with the broader market.
Jiangsu Shagang Group Co. sued the conglomerate after it terminated its agreement to buy the $2 billion stake in Nanjing Iron & Steel’s parent to go with a Citic Ltd. firm instead. The dispute could put the deal at risk, with Fosun possibly bearing the expenses for breaking the earlier agreement.
The Fosun representative said the conglomerate didn’t violate the pact with Shagang and the litigation won’t affect the normal operation of the group.
Meanwhile, Beijing’s modest economic growth target of about 5% for the year could handicap Fosun’s revival. Moody’s Investors Service withdrew its credit ratings this month, citing insufficient information, while S&P Global Ratings has a negative outlook on the firm.
“Fosun will likely trim its balance sheet further while focusing on core holdings via additional asset sales this year, but uncertainties remain for such divestments,” said S&P director Chloe Wang, adding that the bank loan it secured in January won’t be enough to cover all of its debt. Fosun needs to improve its capital structure, and that will take time, she said.
Guo founded Fosun’s predecessor with three university classmates in 1992. From a tiny Shanghai house near Fudan University, they rode bikes to meet clients and offer consulting services.
The group was one of the first giants in China that feasted on easy bank loans to go on an expansion spree. By the time it went public in Hong Kong in 2007, Fosun was the country’s largest private conglomerate.
At its peak, it owned almost 50 major business units, including insurer Fidelidade, resorts around the globe, pharmaceutical companies and metals producers.
The music stopped when the government began cracking down on private-sector leverage. In October, Fosun said it would unload as much as $11 billion of assets in the next year to refocus on three key sectors: pharma, retail and tourism.
Guo pledged last month the company will continue to prioritize “sustainable growth” and speed up cash inflow, reducing interest-bearing debt and improving credit ratings by accelerating divestments of non-core assets.
“Fosun has taken the right decision to improve on its financial situation with some divestments,” said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis SA, adding that China’s recent relaxation of policies is also helping. "The leadership seems to be fully aware of how much it needs the private sector to jumpstart growth and how important growth is for China to avoid social problems."