U.S. Markets closed

Fosun's global holdings help spread risk from Thomas Cook collapse

The liquidation of 178-year-old British tour operator Thomas Cook will have a limited financial impact on Chinese conglomerate Fosun International, the Hong Kong-listed company said on Friday.

Fosun Tourism and Fidelidade, two of the conglomerate's major subsidiaries, together held 18.6 per cent of Thomas Cook's shares as of the end of June, making Fosun its largest shareholder.

Fosun said the carrying amount, which means the recorded costs, after its accumulated impairment losses from its investment in Thomas Cook amounted to just 327 million yuan (US$45.8 million), according to a filing with the Hong Kong stock exchange.

International rating agency Moody's Investors Service agreed that the liquidation's impact on Fosun would be limited, but added that it reflected the risks of the Chinese conglomerate's overseas investment strategy.

Thomas Cook logos are pictured on the tail fins of the company's passenger aircraft at Manchester Airport in northern England on September 23. Photo: AFP alt=Thomas Cook logos are pictured on the tail fins of the company's passenger aircraft at Manchester Airport in northern England on September 23. Photo: AFP

"The liquidation will have a limited impact on Fosun's future cash flow and market value-based leverage because it has a large and highly diversified investment portfolio, which amounted to about 229 billion yuan as of the end of 2018," Moody's said.

The agency said Fosun Tourism and Fidelidade had recognised most of the impairment losses from their Thomas Cook investment in 2018 and the first half of this year and, therefore, further recognition of impairment losses would be limited.

The collapse of Thomas Cook, to which Fosun, investors and creditors offered £900 million (US$1.1 billion) in the form of a financial lifeline last month, weighed on the Shanghai-based conglomerate's listed equities.

Thomas Cook's collapse scuttles Fosun's global tourism ambition

Fosun did not disclose its impairment losses from the Thomas Cook investment. It did say that on top of the carrying amount, it had never provided any guarantees to the tour operator, and had not made any investment in relation to its possible recapitalisation.

Fosun has a strong investment appetite, and a track record of investing in financially weak businesses with the aim of turning them around for value appreciation, Moody's said.

The conglomerate aims to create one of the world's largest leisure-focused businesses, and owns culture and tourism-related businesses such as French resort chain Club Med, Canadian circus company Cirque du Soleil and the Atlantis resort in southern China's main tropical resort island of Hainan, among other tourism assets.

Thomas Cook's demise left 600,000 holidaymakers in the lurch, forcing the UK government to charter dozens of flights to bring hundreds of thousands of tourists home, in what authorities said was the biggest peacetime repatriation of British subjects.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.