In a striking move, Fosun Tourism Group has swiftly confirmed the timeline for its privatization and delisting from the Hong Kong Stock Exchange, set for March 19, 2025. This decision comes just two months after the announcement of privatization plans, showcasing the company's ability to navigate the complex financial landscape in record timeTypically, such processes take three to six months, but Fosun has managed to minimize this duration significantly.

The cornerstone of this agreement appears to be the attractive buyback offer of HKD 7.8 per share, a price that offers a considerable premium—between 95% and 290%—over the stock's average trading prices over the past yearThe first trading day post-announcement saw the stock rally to HKD 7.21 per share, representing an 80.25% increase in value and giving the company a market capitalization of HKD 90 billion.

However, this newfound excitement for Fosun's share price does not reflect a resurgence in the company's broader fortunesSeven years ago, during its IPO, the company aimed for a share price between HKD 15.6 and HKD 20, hoping for a market value of around HKD 195 to HKD 250 billionUnfortunately, the IPO was priced at the lower limit, leading to a disappointing first day closing at HKD 14.98, resulting in a valuation of around HKD 183 billionSince then, the company's stock has experienced a prolonged period of underperformance and low liquidity.

As the delisting date approaches, Fosun's stock has begun to reflect its imminent privatization, trading at HKD 7.6 per share as of February 14, 2025. The financial health of Fosun Tourism is apparently strong, with a reported revenue of RMB 9.4 billion and a net profit of RMB 323 million in the first half of 2024. Notably, their Club Med resorts accounted for approximately RMB 8.2 billion of revenue, while the Atlantis property in Sanya brought in about RMB 870 million.

This situation raises questions regarding the valuation of Fosun Tourism

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The company is sitting on substantial assets but is still trading at a low market cap, a situation that seems at odds with its performance metricsThe issue of liquidity is critical here; since going public in 2018, Fosun has not engaged in any equity financing activities, which has led to restrictions in raising capital.

Among its premier assets is the Sanya Atlantis, which has garnered significant attention regarding its futureEstablished in 2014 and officially opened in April 2018, the Sanya Atlantis boasts an impressive range of facilities, including 1,314 ocean-view rooms, an extensive aquarium, and a massive water parkSpeculation surrounds the potential for Sanya Atlantis to be spun off through a Real Estate Investment Trust (REIT) listing on the Shanghai Stock Exchange, with filings indicating a valuation of around RMB 13 billion.

The Atlantis site is not only home to a thriving resort but has also recently been designated a National 4A Tourist Attraction by the provincial tourism committee, bolstering its investment appealAccording to current regulations surrounding public REIT issuances, properties within designated heritage zones or tourist attractions may qualify as underlying assets, further enhancing the probability of Sanya Atlantis being a prime candidate for this financial maneuver.

Fosun appears to have successfully utilized various financial instruments, including Commercial Mortgage-Backed Securities (CMBS), to optimize its capital structureFor instance, in March 2020, Fosun issued bonds secured against the Atlantis hotel and water park, raising RMB 7 billion for enhancing its operational capacity and addressing existing debts.

In contrast, Club Med’s fate remains uncertain amidst the privatization effortsAcquired by Fosun in 2015 for USD 1 billion after a prolonged bidding process, Club Med has been embroiled in financial turbulence owing to Fosun's broader debt issues, leading to rampant rumors of potential asset divestitures

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