(Yicai Global) July 19 -- Chinese retail giant Suning Commerce Group Co.'s [SHE:002024] share price dived by the daily limit during today's call auction before opening at 5 percent down, after state-owned broadcaster CCTV criticized the group's investment in Italian football club Inter Milan.
The decline narrowed to 3.8 percent, but Suning-related bonds also took a hit, with the 12 Suning 01 falling 0.41 percent to CNY99.86 (USD14.78) and the 13 Suning Bond sliding 0.1 percent to CNY102.
CCTV News' 1+1 program last night put the spotlight on China's irrational overseas investments. The same day, a spokesperson for the National Development and Reform Commission had warned companies to be more prudent went splurging on international investments in real estate, hotels, studios and sports clubs.
"For instance, take the EUR270 million (USD311 million) Suning Group poured into a holding stake in Inter Milan," CCTV reported. "This famous club has been in the red for five straight years with a cumulative loss of EUR276 million. Why on earth would they buy in?"
Chinese companies that already have a high debt ratio at home still dive into outbound acquisitions, burdened with massive loans, , the broadcaster quoted Pan Gongsheng, vice governor of the People's Bank of China and head of the State Administration of Foreign Exchange, as saying in March. Some even transferred assets in a bid to cover up the direct investment.
Firms can do anything with their own money, Yin Zhongli, from the Chinese Academy of Social Sciences' Financial Research Institute, told CCTV. The problem lies in the fact that it's borrowed money they're using.
"Most of these institutions have heavy debts at home," he said. "They took out loans from domestic banks or other institutions to buy invest or buy assets abroad. When problems arise, large portions of the loans end up as bad debt, which poses increased financial risk in China."
Suning Group, the retail company's controlling shareholder, announced in June that its subsidiary Suning Sports Industry Group expected to acquire an almost 70 percent stake in Inter Milan through new share subscriptions and acquisitions of existing shares. After the deal is completed, International Sports Capital HK Ltd., owned by the club's current chairman, Erick Thohir, will still hold its circa 30 percent stake.