Financial Results

Morgan Stanley Reiterates "Overweight" Stance On Fosun, Says Debt Worries Unfounded

Tom Burroughes, Group Editor, 20 September 2022

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Fosun has been active in the Western private banking market. The German bank subsidiary of Chinese conglomerate Fosun International bought the private bank Bankhaus Lampe Fosun. The deal completed its acquisition of H&A, a German private bank, covering various sectors including financial services.

Morgan Stanley has reiterated its “overweight” rating on Hong Kong-listed Fosun International, the conglomerate that has bought a range of financial institutions, including private banking and wealth management groups, in recent years. The bank has pushed back at investor perceptions that Fosun has a heavy debt burden. 

The US bank has a target price of HK$11.4 ($1.45) per share on Fosun, it said in a statement yesterday. 

The report noted that in the first half of 2022, Fosun achieved “sustainable growth” in its revenue of RMB82.89 billion, equating to a year-on-year 17.7 per cent increase over the same period in 2021.

The group has a total debt of RMB100 billion and total assets of RMB270 billion; the debt is far less than some investors assume, Morgan Stanley said.

The report comes at a time when certain Chinese groups, such as real estate developer Evergrande, have come under pressure because of their debt exposures. 

In July, UBS stated that it had a “neutral” view of Fosun’s debt.

Concerns
The bank noted that investors are concerned about Fosun International's debt. 'they think that Fosun is under the pressure of a RMB650 billion debt. But Morgan Stanley said the market's perception of the RMB650 billion debt is, in fact, a “confusing statement.”

“This RMB650 billion figure is the consolidated total liabilities of Fosun International and its subsidiaries, including the liabilities of its financial institutions such as insurance companies, banks, etc. However, the liabilities of financial institutions and the commonly-referred interest-bearing corporate debt are two different concepts,” it said.

“In fact, the consolidated interest-bearing debt of Fosun International stands at approximately RMB260 billion only, which also consists of debts of its consolidated listed subsidiaries such as Yuyuan and Fosun Pharma, etc. The repayment obligations of these debts is, which independently borne by the corresponding listed companies,” the bank continued.

The actual debt that is borne by Fosun International is only approximately RMB100 billion, corresponding to total assets of RMB270 billion and net asset value (NAV) of around RMB20 per share, it said.

“From this perspective, Fosun is not under significant debt repayment pressure,” Morgan Stanley said.

Fosun has been active in the Western private banking market. Last October, the German bank. a subsidiary of Chinese conglomerate Fosun International, bought Bankhaus Lampe private bank. In 2016, Fosun finally completed its acquisition of H&A, a German private bank dating back 220 years.

Fosun, which covers a variety of business sectors including financial services, has bought a number of financial and related firms, as reported here.

S&P Global Ratings published a report in early June, maintaining "BB Stable" credit rating for Fosun.

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