MBK agrees $1b China theme park deal

The private equity firm, which previously made an 8x return on Universal Studios Japan after investing in the business in the wake of the global financial crisis, had been studying opportunities in the space for some time before approaching Haichang, according to a source close to the situation.

Haichang’s stock price has recovered from a trough of HK$0.38 amid China’s lockdowns in 2020 to close at HK$2.68 on October 8. Financial performance has also recovered following a challenging 2020. However, the company still carries significant debt that needs to be serviced, and it wants to shift to a more asset-light business model.

Haichang has 11 theme parks that receive 20 million visitors a year. MBK is acquiring 100% positions in properties in Wuhan, Chengdu, Tianjin, and Qingdao that have been open for more than 10 years. It is also buying a 66% interest in a Zhengzhou property currently being built. The parks will retain the Haichang brand and a transitional services agreement is in place.

Moreover, the deal features elements of downside protection for MBK. The value of existing loans owed by the four operational parks that the private equity firm must pay and the level of debt-like liabilities it must assume are both capped. Changes in liabilities, payments to related parties, and government subsidies are factored into the RMB450 million Zhengzhou park consideration as well.

At the same, there is scope for Haichang to participate in any upside. MBK will pay incentive fees should EBITDA generated by the operational parks reach certain milestones in 2021 and 2022. Meanwhile, the Zhengzhou price will increase if net working capital levels turn positive.

There are similarities between Haichang and an earlier theme park deal in Asia, BGH Capital’s pursuit of Australia’s Village Roadshow. Material adverse change (MAC) clauses - which can lead to termination in the event of lockdown-like scenarios where revenue streams are effectively shut off - are a common feature. Village Roadshow also included conditions around park re-openings.

Much like Village Roadshow, Haichang’s theme parks are expected to benefit from a surge in domestic tourism in response to restrictions on international travel. China’s re-opening is already reflected in Haichang’s financial results.

Revenue generated by the target assets fell from RMB1.17 billion in 2019 to RMB437.3 million in 2020 and then recovered to RMB794.1 million in the first half of 2021. Meanwhile, a net profit of RMB339.4 million became a net loss of RMB92.4 million and then a net profit of RMB158.8 million.

Haichang remained loss-making in the first half, partly because it paid out RMB307.4 million in finance costs. As of June, it had RMB8.8 billion in outstanding debt and a gearing ratio of 262.1%. This debt burden, as well as the additional capital needs of the Zhengzhou park, were given as reasons for the disposal. It is possible MBK may also invest in an upgrade of the Shanghai park.

While Haichang plans to focus on its core remaining properties, the company also envisages a future in which it leverages its theme park experience by providing consultation, advisory, brand licensing, and operations and management services to other park owners. This asset-light strategy will extend to hotels and shopping malls, it said in a filing.

MBK believes the parks it is buying have strong commercial growth potential and present opportunities for gains in efficiency and sustainability, according to a separate statement.

“Haichang Ocean Park has established a solid position as the best-in-class operator in the theme park industry. As the domestic tourism market continues to grow rapidly, we are honored to have been chosen to partner with Haichang Ocean Park as it moves to its next phase of growth," said Lei Han, a managing director at MBK.

"We believe this investment is a win-win outcome for both parties and China’s tourism and the theme park industry at large.”

The investment comes from the private equity firm’s fifth flagship North Asia fund, which closed in May 2020 at $6.5 billion.

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• Topics
• Greater China
• Consumer
• Buyouts
• China
• buyout
• Travel
• MBK Partners