Fosun Tourism at crossroads as parent shops its two major assets

Fosun International is reportedly looking to sell some or all of its tourism unit’s Atlantis Sanya mega-resort, as well as a stake in the unit’s Club Med resort chain

Key Takeaways:

• Conglomerate Fosun International is considering a sale of some or all of its tourism unit’s two core assets to raise cash to pay down its large debt, according to Reuters
• A sale of one or both assets could drastically alter the picture for Fosun Tourism, which is 78% owned by Fosun International

By Doug Young

There’s strategic investing, and then there’s debt. When it comes to the two, debt seems to take precedence these days for conglomerate Fosun International (0656.HK), which is reportedly looking to offload some or all of the two main assets in its Fosun Tourism Group (1992.HK) unit.

Specifically, Fosun Tourism is exploring a potential sale of some or all of its Atlantis Sanya mega-resort on South China’s Hainan island, according to a Reuters report this week. It’s also exploring a similar sale of a stake in its core Club Med resort chain, Reuters reported last month. All of this comes after Fosun International, which owns 78% of Fosun Tourism, has said repeatedly in the past that it considers tourism one of its core areas and has no intent to sell that business.

Perhaps that was true in the past, though if it really sells the Atlantis resort and part of Club Med, there won’t be much left to the company’s tourism operation. Reuters also previously reported in January that Fosun was in advanced talks to sell one of its other tourism-related assets, the Thomas Cook package holiday tour company, to Poland’s eSky.

After the latest report, Fosun Tourism issued a statement saying it “consistently evaluates and optimizes its business portfolio.” Its lack of a denial this time, which differs from Fosun’s response in the past to similar reports, seems to indicate that the company is indeed shopping Atlantis and also a stake in Club Med.

The bigger story is that Fosun, which is anchored by its Fosun International flagship, is one of the last major Chinese conglomerates still standing after messy collapses of rivals like HNA and Anbang that went on massive debt-fueled global buying sprees in the 2010s. Fosun was one of the better-run conglomerates in the group, which is partly why it has yet to suffer a similar fate. The company has strong ties with the Shanghai government, which helps as well.

That Shanghai government connection is reflected in the fact that Fosun is targeting big state-owned enterprises (SOEs) to buy the Atlantis resort, as well as deep-pocketed Middle Eastern investors, according to Reuters. SOEs are famous for stepping in with financial and other lifelines when a local government wants to rescue one of its struggling local champions. We saw a similar rescue from the city of Shenzhen last year when local real estate giant Vanke ran into similar difficulties due to its similarly heavy debt load.

Fosun’s heavy debts are no secret, and totaled about $30 billion as of last June. The company has previously said it would sell down non-strategic assets to pay down some of that, though, again, it previously emphasized that tourism and pharmaceuticals are two areas it considers strategic.

Thus, this latest report seems to indicate that Fosun no longer considers tourism to be quite as strategic as it previously did. What Fosun Tourism might look like after the sales of some or all of its two largest assets is anyone’s guess.

Fate of Fosun Tourism      

It’s quite possible Fosun Tourism could continue as a listed company, even without the Atlantis resort that accounted for about 10% of its revenue in its latest financial report for the first half of last year. It’s also possible Fosun International could ultimately disband the tourism unit and focus on its other core areas, which include its Fosun Pharmaceuticals (2196.HK; 600196.SH) and Lanvin (LANV.US) luxury goods business.

At the very least, the latest talks seem to indicate that tourism is no longer the sacred cow that it once was in terms of assets that weren’t for sale.

Shares of both Fosun International and Fosun Tourism sagged after publication of the Reuters report on Tuesday, with each ticker down about 6% over the next three trading days. Both stocks have been under a bit of pressure lately, with Fosun Tourism now trading at a forward price-to-earnings (P/E) ratio of just 8. That’s half the 16 for online travel agent Trip.com (TCOM.US; 9961.HK), and less than a third of the 29 forward P/E for Hilton Worldwide (HTL.US), which is also a major resort operator.

The low valuation for Fosun Tourism seems to reflect worries about its parent’s debt, rather than any problems at the actual company. In fact, Fosun Tourism is doing quite well these days thanks to a post-pandemic travel rebound that is benefiting tourism companies worldwide.

The company issued a profit alert last month saying business volume from its tourism operation grew 15% or more in 2023, and the figure was up 25% or more from pre-pandemic levels in 2019. Interestingly, calculations using data in the profit alert showed the company will record a loss of about 200 million yuan ($27.8 million) in the second half of last year, reversing a 472 million yuan profit in the first half. But the loss is probably due to factors such as one-time charges, since business in general was quite good for the tourism sector.

“The company’s business operations are performing well now, and its financial condition is stable,” Fosun Tourism said in the statement in response to the Reuters report on a potential Atlantis sale.

Atlantis is a massive resort with more than 1,300 guest rooms, as well as facilities including a water park and shopping mall. Construction began on the property in 2014 and was completed four years later, and Fosun reportedly said it had invested 11 billion yuan in the property – or roughly $1.5 billion – as of 2018.

Atlantis Sanya’s revenue jumped 89% year-on-year in the first half of last year to 928 million yuan, and its revenue per available room (revpar), a common industry metric, rose by a similar 82% to 2,075 yuan. Club Med accounted for the lion’s share of Fosun Tourism’s revenue in the first half of last year, about 84%, and was also up 34% during the period to 7.5 billion yuan.

At the end of the day, Fosun is probably exploring all of its options to pay down its debt, even for its tourism assets that it previously said weren’t on the table. Given the current positive environment for tourism, the company might even be able to pocket some tidy profits on its Club Med and Atlantis investments if it can find the right buyer.

To subscribe to Bamboo Works free weekly newsletter, click here