Tag: China

Death Knell for Zhonghong

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As I write this, I’m awaiting word from the Chinese authorities on whether or not Zhonghong Holdings will be the first company to be delisted from a Chinese exchange for trading under 1 yuan for over a month. At today’s exchange rate, 1 yuan is aproximately 14 US cents. Zhonghong Holdings holds the exclusive license to develop SeaWorld branded parks and entertainment centers in China, Macao, Hong Kong, and Taiwan,

Meanwhile, a development just as big is taking place. China Securities Journal reports that Zhonghong Holdings’ 33 billion yuan of unpaid loans are being auctioned off. At today’s exchange rate, that’s US$4,762,890,000. According to the report, buyers are less interested in taking on the debt, so much as there are in acquiring the collateral – the Zhonghong Building in Beijing.

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Now the SeaWorld shares owned by Zhonghong Zhuoye are safe from what’s happening to Zhonghong Holdings – kind of. And I’ll get to that in moment.

First though, some quick background. As I’ve mentioned before, Zhonghong Zhuoye and Zhonghong Holdings are two different companies. Zhonghong Holdings is a publicly traded real estate development company. Zhonghong Zhuoye is the private investment company that owns a sizable stake each of  Zhonghong Holdings and SeaWorld Entertainment. So technically, they’re different companies and this is where things get tricky.

When looking at Zhonghong Holdings’ attempts at expansion, one thing becomes evident: it wanted to be like its competitor, Fosun.

Fosun co-founded and funded the film and television company Studio 8, after which Zhonghong Holdings entered into a partnership to try and acquire DreamWorks Animation.

Fosun partnered with Fortress Investment Group to develop senior housing in China. Then Zhonghong attempted to purchase Brookdale Senior Living in the US. It could not secure the financing and ended the attempt. After which, Fosun invested in Brookdale.

Fosun bought Club Med, Zhonghong followed by buying luxury travel company Abercrombie and Kent.

Most importantly, a year before Fosun opened its Atlantis Sanya resort in Hainan, a co-venture with Kerzner International, Zhonghong Zhuoye paid 33% above market to purchase Blackstone’s remaining shares in SeaWorld. As part of the deal, Zhonghong Holdings got the license rights for China.

Now there is a victim in all this – and that’s SeaWorld Entertainment. The company had nothing to do with the Zhonghong Holdings situation. It didn’t determine who bought the stock – that was Blackstone. And as for the rather lucrative shareholder and licensing agreements that were signed – David D’Alessandro was the Chairman of the Board at the time the agreements were formulated, and he was a Blackstone appointee. In fact, he had been appointed Chairman of SeaWorld’s Board in 2010, when the company was 100% owned by Blackstone. If you consider Blackstone and Zhonghong to be a rock and a hard place, then SeaWorld was indeed between a rock and hard place.

By all indications, Zhonghong Zhuoye’s not doing so good either. A good portion of its assets are tied up in Zhonghong Holdings and were frozen by the courts. A year ago, the auction house Christie’s sued Zhonghong Zhuoye’s owner Wang Yonghong for HK$120 million (US$15,357,600 based on the exchange rate of Sept 25, 2017) for the amount due on a Chinese vase won at auction.

With Zhonghong Holdings not being in a position to build SeaWorld parks, those contracts will likely be dissolved. And without the contracts in China, Wang most likely will want to increase his equity, and that’s done through the sale of his shares in SeaWorld.

But wait! There’s more!

Because Zhonghong’s tale is the gift that keeps on giving.

To finance the purchase of that 21% of SeaWorld stock, Zhonghong took out two external loans.

The first wasn’t technically a loan. Zhonghong Zhuoye issued 10,000,000 Class B preferred shares of Sun Wise UK to China Huarong Investment for $100,000,000. Sun Wise is the dummy company Zhonghong Zhuoye created to purchase the SeaWorld stock.

So why does China Huarong matter?

Meet Lai Xiaomin.

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He was arrested yesterday after a lengthy investigation by Chinese authorities. Charges include bribery and his firm dolling out billions of dollars in loans to companies they allegedly knew were unable to repay. His corruption trial is expected to be the biggest yet in modern Chinese history.

Lai Xiaomin was the Chairman of China Huarong at the time the SeaWorld shares were purchased.

And continuing….

PAG (formerly Pacific Alliance Group) loaned an additional $150,000,000 for the purchase. I highly suspect that Zhonghong Zhuoye, if it has not yet, will default on a loan payment to PAG. Around the middle of August, colleagues of mine in China began telling me to look for something happening between Zhonghong  and PAG (though they weren’t sure if it was Zhonghong Holdings, which has had business dealings in the past with PAG, or Zhonghong Zhouye). About the same time, a mysterious page appeared on the SeaWorld Entertainment website, only to be taken down the same day:

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A few days ago, I posted on the ThemedReality Facebook page that I had been informed by reliable sources that Six Flags was in talks to purchase all or part of SeaWorld Entertainment (click on the Disclaimer tab above for my policy on anonymous sources. A similar disclaimer appears on the Facebook page). The one line post was picked up by national news (I guess the elections and Jeff Sessions resigning weren’t important enough) and there were quite a few naysayers, which I’m comfortable with, since I advocate free speech.

Now, I have no reason to doubt my sources. At the same time, I understand the reasoning behind those that do doubt the statement.

If you look at the statement of Six Flags and SeaWorld strictly as a domestic transaction, it makes little sense.

But it does make sense if it’s part of a global strategy.

Teir 1 parks are a growth market in China. The biggest submarket of those are marine life parks – places like Atlantis Sanya, Chimelong Zhuhai, and Shanghai Haichang Ocean Park, which is opening next week.

In Hainan alone, which is now a visa free tourist zone for visitors from more than 50 countries,  we can expect eight to ten large scale aquariums and marine life parks within the next decade on an island the size of the US state of Maryland.

The 2017 AECOM/TEA Theme Index gives us an idea of how many people visited the two flagship SeaWorld parks last year: 3,962,000 in Orlando and 3,100,000 in San Diego. During the same period, 5 million people visited Hong Kong’s Ocean Park, while 9,780,000 visited Chimelong Ocean Kingdom in Zhuhai, up 15.5% from the year before.

Without a doubt, the world’s most well known marine life park brand is SeaWorld. Whoever has control of the SeaWorld brand in China stands to make significantly more than they would off the SeaWorld branded parks in the states. Owning a significant amount of shares in SeaWorld makes it easier to secure those licensing rights.

Six Flags talking with SeaWorld? It’s about much more than Six Flags Tampa Bay.

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The Other Side of the News marine life park edition part three: The secret deal between Marineland of Canada and the Chinese government

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At the beginning of July, a strange rumor started circulating on social media: In the shadow of the death and funeral of its owner, John Holer, Marineland of Canada, near Niagara Falls, had secretly shipped two of its beluga whales to China. Some of the posts and tweets stated that the sale and transfer was not a rumor, but a fact.

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The social media posts stemmed from a July 3 report in the Chinese government-controlled media. It reads, and this is a rough translation:

“A few days ago, Guiyang Customs escorted two beluga whales to the remote animal world isolation animal quarantine site in Longchuan, Hubei Province, and began a 45-day quarantine.

“It is reported that the beluga whales came from Canada, entered the Beijing Capital International Airport, and then transferred to Guiyang, and Guiyang Customs sent a staff to Beijing to carry out the whole process of quarantine supervision. Due to the long transportation time and the hot weather along the way, in order to ensure the safety of beluga whales, the customs officers responsible for quarantine quarantine and disinfect the contact personnel, quarantine sites and shipping vehicles, carry out full video surveillance of the unloading process, and package the whales. The objects and bedding are treated harmlessly. After 46 hours of long journey, after ensuring that the beluga whale is in good health and there is no trauma on the body surface, the beluga whale is safely placed in the isolation culture pond.

“In order to welcome the beluga whales, Guiyang Customs set up a working group for the quarantine supervision of the incoming beluga whales, organized professional and technical personnel to carry out quarantine supervision, arranged special personnel to follow up the disinfection vehicle pass, and implemented the site permit in advance, and went to the enterprise to isolate The quarantine-related system conducts policy announcements and prepares adequately.

“The white whale mammal is a national secondary protected animal because it likes to “sing” and is also called “sea canary”. The establishment of white whales in Guizhou will further enrich Guizhou’s species resources and add vitality to Guizhou’s tourism”

SCENARIO 1

The article clearly stated that “It is reported that the beluga whales came from Canada…” Since there’s only one facility in Canada that houses belugas – Marineland – there was no question where they could have come from. The easiest way to verify this would be to ask the park itself. After an email inquiry wasn’t responded to, I called the park directly, only to be thwarted by former Marineland trainer turned anti-Marineland activist Phil Demers.

Now, I’m not trying to be a dick, but this is what really happened. Demers has undertaken the practice of posting on social media everytime he hears about a possible injury, illness, or death of an animal at Marineland. As a result, his followers deluge Marineland with calls to inquire about the condition of that particular animal. And the park operator hangs up on them. You can actually find videos online of people filming themselves calling Marineland and being hung up on.

About 24 hours before I called Marineland, Demers hit twitter.

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So I called Marineland. I gave my name, gave the names of a few mainstream publications I write for, asked to speak to a media representative about the two belugas in China reported to be from Canada, and was promptly hung up on.

On my second call, I was told by the receptionist, “Tell your buddy Demers we record all his lies.” Then she hung up again.

And thus began an investigation involving eight attractions and tourism industry colleagues in the United States, Canada, Russia, and China.

The first thing we did was to contact Fisheries and Oceans Canada and Environment Canada, the two agencies that would issue export permits for belugas. Neither had, which was confirmed by a conversation with an animal rights advocacy group conducting its own investigation. At that point, we knew it wasn’t Marineland.

SCENARIO 2

The line in the report that the beluga whales came from Canada was our only clue. We could rule out potential capture by First Nations or other parties due to the lack of export permit.

Taking a different approach, we kept in mind that when interpreting Chinese, words or groups of words can have different meanings.

Could this mean that the belugas originated in Canada, but were exported from a different country? This would include any belugas originating at either Marineland or Vancouver Aquarium and their offspring. We also looked into L’Oceanografic in Valencia, Spain, which is managed by the Vancouver Aqurium and houses a mating pair of beluga and their calf.

When we concluded our inquiries, all American and Spanish belugas were accounted for, so we ruled out this scenario.

SCENARIO 3

Then came a bombshell.

A government tourism analyst in Beijing told us that the photo op and article were staged. At his request, we are sharing his statements here strictly on grounds that we maintain his anonymity due to his position within the government.

Government staged propaganda is common in China to promote goodwill towards projects or opportunities. And a lot of it is fake. For example, even before Shanghai Disneyland opened, a number of provincial and municipal leaders staged press conferences surrounded by local teens wearing knockoff Disney costumes, where they announced that Disney had entered talks with them to open the next Disneyland in China. Far from the truth, but the ultimate goal was to build up corporate investment, particularly from overseas investors, in those regions.

So why stage a photo op of what appears to be a happy beluga whale flirting with customs officers? (It looks authentic. Not only are those actual customs outfits, but that’s an actual facility that we have photos of from a few years back, although this one was a photo we haven’t seen before).

According to the analyst, the news story was designed to counter two recent stories about belugas that the government deems negative.

The first involved a trainer applying lipstick to a beluga at a Dalian aquarium.

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The second involved the news that Merlin Entertainments would be moving its two belugas from Shanghai to a sanctuary in Iceland. According to the analyst, “The government is against this. The whales have become a vital part of economic development throughout the country. When a new aquarium opens, Chinese people expect to see the whales. The operation is often considered a disappointment if they are not there.”

One major factor that turned around government sentiments for Merlin’s export of the whales was a 2015 commitment by the company to increase development of attractions, such as Madame Tussauds and Sea Life, and build LEGOLAND theme parks throughout the country. However, although the sanctuary announcement was major news in Hong Kong and Taiwan, its coverage in Mainland China’s mainstream media was minimized.

Just how important are whales and dolphins to China’s economy?

My associate Michael Giskin, founder of China Orca News, has compiled this list, which is accurate as of the time of this post. Keep in mind while you’re reading this that we have estimated that on average, one new facility with marine mammals is opening in Mainland China every single month.

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SCENARIO 4:

This is the real story about the beluga whales that were shipped from Canada.

They were not from Canada.

They did not originate with Canadian owners.

They were not part of a publicity stunt.

On June 8, the two belugas departed Russia

From June 9 to about July 31, the belugas were at an unknown location or locations while the 45-day quarantine period began

Around July 1, the two belugas arrived at Colorful Guizhou City Polar Ocean World

On July 3, Chinese media reported on the arrival of the belugas, reporting erroneously that they were from Canada.

On July 23, the 45-day quarantine period was completed as one of the two belugas departed Colorful Guizhou City Polar Ocean World

On July 25, one of the two belugas arrived at Ganzhou Polar Ocean World

We know that  the transferred beluga is female with a given age of around eight years old. Often a year or two might be fudged on the age to make it appear younger. As the Russian government increases its crackdown on illegal captures, which is driven more by who’s a friend of Putin rather than actual animal welfare concerns, documentation and media reports within Russia on marine mammal export to China become harder and harder to find. A seven to nine year old beluga could have come from either a facility or a live capture – although much younger whales are generally preferred for capture.

We have suspicions that these two may have originated at the Utrish Marine Station, part of the collection of 18 belugas held for the Georgia Aquarium. There were two females, one each from the 2010 and 2011 captures, that would currently be in that age range. Keep in mind though, that right now,  my statement on the whales coming from the Georgia Aquarium collection is purely speculation and we will keep investigating. If you decide to pass it along as fact on social media, that’s all on you.

As for the whales being reported as having come from Canada, Michael has an interesting theory – someone told the reporter that wild belugas can be found in Russia and Canada and he got confused.

A simple mistake that set off a storm.

Special thanks to Michael Giskin, Annie Wong, and the entire research team.