OREANDA-NEWS. Fitch Ratings says today that ratings on Dalian Wanda Commercial Properties Co. Ltd. (Wanda: BBB/Stable) and its bonds due in 2018 and 2024 may come under pressure if an offer to take the company private from its parent Dalian Wand Group Co. Ltd. (Wanda Group) materialises.

Wanda said on 30 March 2016 that Wanda Group is considering a voluntary general offer for shares in the commercial property company at a minimum of HKD48 per share, which could result in Wanda's delisting from the Hong Kong Exchange.

The privatisation, if successful, will increase Wanda Group's leverage and further weaken its financial profile after it made a series of aggressive acquisitions since 2014. Wanda's ratings would come under pressure if the formal offer does not provide sufficient ring-fencing for Wanda from the group and because of less transparency after the delisting.

Wanda's 2015 results were in line with our expectations, with leverage ratio (measured by net debt/adjusted inventory) of 33%, and coverage ratio (measured by recurring EBITDA/gross interest) of 1.1x. Fitch maintains our view that Wanda's 2016 financial metrics would worsen with leverage ratio rising above 35% and coverage ratio close to 1.0x. Please refer to the rating action commentary "Fitch Downgrades Wanda to 'BBB'; Outlook Stable", published on 3 Feb 2016, for details.

The performance of its investment property business in general continues to improve. The company's recurring income from investment properties rose 29.1% in 2015, with EBITDA margin widening to 46.8% from 44.1% a year earlier, which reflected the more stable operations at its new hotel assets. The average rental rate for its malls continued to increase, by 8.6% in 2015 to CNY97.6/sqm. Fitch expects a recurring EBITDA/gross interest to improve to above 1.5x by the end of 2017 as the company moves towards transforming into an investment property company.

The continued low interest rates in China and Wanda's diversified funding sources have helped to lower Wanda's cost of debt to 6.7% in 2015 from 7.5% in 2014. Fitch expects Wanda's cost of debt to trend below 6.5% in 2016, which could mitigate the heavier interest burden from increased debt in 2016.