‘China’s Buffett’ REFOCUSES FOSUN
Guo Guangchang tries to defy post-pandemic downturn with shift to health.
Guo Guangchang, the chairman and co-founder of Fosun International, wants to be known for seizing the moment. In 2007, armed with US$1.5 billion raised from the consumer group’s stock market listing in Hong Kong, Guo began a quest to globalise Fosun, acquiring a string of overseas assets in the aftermath of the global financial crisis. Local media dubbed him “China’s Warren Buffett”.
Now, against the background of another event that is reshaping the business world, Guo is again trying to turn the moment to his advantage. He is reshuffling Fosun’s leadership and looking at new openings in health and vaccines as he tries to find a new strategy and modus operandi for the once-expansive group.
“We cannot continue to open up frontiers,” the 53-year-old executive told Nikkei Asia. “We will continue to strengthen our foothold in the industry and to grow roots and develop after a certain period.”
Guo, who owns 60.3% of Fosun, has good reason for trying to rethink and consolidate businesses that range from beer to football and employ 71,000 people across nearly 20 countries. Fosun’s net profit plunged 73% to 2 billion yuan ($294 million) in the first half of 2020, mainly due to the losses at tourism-related businesses that have been among the most brutally affected by the coronavirus pandemic.
The company’s shares have been trading at less than half their peak in 2015, a few months before Guo disappeared for a few days for what Fosun ambiguously described as “assistance with investigations by judiciary authorities”.
Guo said the current challenge was “unprecedented” in 28 years of managing Fosun — but also an opportunity to consolidate the group, which had to cope with the 2019 collapse of the Thomas Cook Group, the pioneering UK travel firm, even before being hit by the pandemic.
Since then Fosun’s performance has been hammered by lockdowns that began in China and later spread to the overseas markets where the Shanghai-based group derives 43% of its revenues.
Fosun has long proclaimed that its “ecosystem” of portfolio companies revolves around health, wealth and happiness — and it is the damage to the last of these that has been most visible in the pandemic and made its minority shareholders most unhappy. Tourism contributed nearly half of the company’s revenue last year.
Through its Hong Kong-listed subsidiary Fosun Tourism, Fosun owns France-based Club Med, in which it first invested in 2010 before acquiring it wholly in 2015 for €939 million ($1.1 billion). Club Med operates 65 resorts in over 20 countries, including seven in China.
The holiday resort chain catering to the affluent has had to raise additional funding, offer accommodation credits in lieu of cash to customers who cancelled bookings and furlough staff to stay afloat.
“The spring festival (in January and February) was supposed to be a peak period at Atlantis Sanya and Club Med resorts in China but business suffered heavily from the epidemic and ended up with zero revenue,” Guo recalled.
Separately, Fosun’s 20% shareholding in Cirque du Soleil Entertainment Group is at stake after the Canadian company filed for bankruptcy protection in June.
Known as a Canadian national treasure, Cirque du Soleil was one of the few circus groups left globally until the pandemic forced shows to be cancelled.
These have followed the debacle at Thomas Cook, the world’s oldest tour operator, which filed for bankruptcy abruptly last September after creditors rejected an eleventh-hour rescue bid by Fosun to inject capital into the debt-laden British firm.
In 2015, Fosun paid $140 million for an initial 5% stake in Thomas Cook, hoping to drive traffic to its Club Med resorts and expand its tourism business on the back of the growing number of middle-class Chinese travelling abroad.
But except for the Thomas Cook brand that it acquired separately for £11 million, and their joint venture in China, Fosun lost its bet as the business folded.
“It was inevitable that a company would pay a huge price in its globalisation foray,” Guo said during a news conference on Aug 28. “When everyone is casting doubts on our failed investment abroad, I would like to highlight our successful deals that justified our globalisation strategy.”
One of them is the partnership with the German pharmaceutical company BioNTech, which has granted Fosun the exclusive licence to develop and commercialise its Covid-19 candidate vaccine in China. The vaccine, codeveloped with the US drug maker Pfizer, is now being rolled out in many countries including the US and the UK, and Fosun is preparing to acquire 100 million doses for distribution in China (see sidebar).
Guo said such a partnership was only possible after Fosun had grown to the size it is today on the back of China’s rapid growth and vast market.
Fosun, short for “Stars of Fudan” in Chinese, was founded in 1992 by Guo and four classmates from Fudan University in Shanghai with 38,000 yuan borrowed from friends and relatives.
Born in Zhejiang province next to Shanghai, the son of a stonemason father and a mother who grew vegetables, Guo, who has two older sisters, was expected to be the promising son, customary among rural families.
At the age of 25, he embraced xiahai — the “go on a voyage” trend of starting a business under China’s reform and market opening policy. Fosun Pharma, founded in 1994, was one of his early forays into a largely untapped drug market dominated by generics.
With a no-nonsense approach, Guo expanded Fosun’s domestic business after the listing of its pharmaceutical arm in 1998, investing in the steel and retail industries before embarking on a global push after its 2007 Hong Kong listing.
Fosun was part of a group of privately held Chinese companies — including the property developer Dalian Wanda Group, the airline operator HNA Group and Anbang Insurance Group — that made hefty investments abroad, alarming many in the market. Beijing responded in 2018 by putting the brakes on peer-to-peer lending — blamed for fuelling speculative investments — to avoid systematic risk in its financial system.
Guo defended Fosun’s acquisition drive, saying it had helped save the company time in building up global brands and business networks.
In a CCTV interview broadcast in 2017, Guo was seen chastising a subordinate at an event in Germany to mark the acquisition of the private bank Hauck & Aufhauser.
“We should not have lion dance in our events,” Guo told the aide. “The Germans will think this is China but you have to tell them this is not China.” It seemed to be an acknowledgment of Fosun’s need to respect local cultures in its acquisitions.
To stay healthy, physically and mentally, Guo says he practises tai chi twice or three times weekly. “Tai chi emphasises the concept of balance, which can be applied in society and business management,” he said.
This year Guo has moved to shake up Fosun’s management, moving trusted executives up the ranks by creating two positions for chairman and CEO respectively, assisted by a chief financial officer with two deputies.
“The change has enabled us to bolster operational capability at the top level, overseeing each business unit below it,” he explained.
In June, he also sold part of Fosun’s 10% stake in the Alibaba-owned logistics company Cainiao, a move Guo said was intended to remove non-core assets. Fosun had acquired the stake for 500 million yuan in 2013.
These moves did not stop Moody’s Investors Service from downgrading Fosun’s corporate family rating from Ba2 to Ba3 in July. The rating agency cited Fosun’s high and increasing debt leverage due to its debtfunded investment strategy as reasons for the downgrade amid the pandemic-led economic downturn.
“I feel Moody’s overreacted to the impact of Covid-19 on Fosun,” Guo said, adding that the group’s diversified composition has allowed it to offset some of the shock from the pandemic.
With its overseas businesses clustered largely in Europe and Asia, Fosun has been arguably less exposed to scrutiny by the administration of US President Donald Trump.
As well, Fosun has so far avoided the kind of liquidity crisis faced by other privately held Chinese conglomerates such as HNA Group, which like Fosun was at one time aggressively snapping up stakes in companies including Deutsche Bank and Hilton Worldwide.
“With the recovery of the domestic market well on track and stabilising financial markets, we see an improving outlook for [Fosun] core businesses in the second half,” Credit Suisse said in a report on the company on Aug 27.
One country with which Fosun would like to do more deals is Japan, Guo says, pointing to the attractiveness of the Chinese domestic market to Japanese companies. In Japan, Fosun controls the property manager Idera Capital Management and the ski operator Hoshino Resorts Tomamu.
But in the near term, the company may have to apply the brakes, says Brock Silvers, a longtime investor in Hong Kong.
“New overseas deals seem unlikely for Fosun, and while Covid-19 is a contributing factor, so is an otherwise chequered track record,” he said, referring to Fosun’s expansive investment strategy.
“It’s hard to be bullish on the travel sector in the near term, but Fosun shouldn’t be faulted for defensively trying to salvage its existing position,” added Silvers, referring to the measures taken by Club Med to mitigate weak demand.
Guo has not relinquished his appetite for overseas acquisitions completely, suggesting that future investment will have to support the group’s existing businesses rather than branching into a new area.
“We will make adjustments based on economic trends, balancing between advancing and withdrawing from a market,” he said.
It was inevitable that a company would pay a huge price in its globalisation foray. When everyone is casting doubts on our failed investment abroad, I would like to highlight our successful deals that justified our globalisation strategy