Chinese conglomerate Dalian Wanda Group is to invest more than 1 billion pounds ($1.6 billion) to buy a British yacht maker and to build a top-end hotel in central London, in a bid to expand its overseas presence.
The company said on Wednesday that it will pay about 320 million pounds to acquire a 91.81 percent stake in Sunseeker International Ltd, a Dorset-based luxury yacht manufacturer which is famous for providing yachts for James Bond movies.
The remaining 8.19 percent stake will be acquired by Sunseeker's management team. The deal is expected to be completed by mid-August.
Wanda Group also said it will invest 700 million pounds to build a five-star, 160-room hotel on the South Bank overlooking the Thames River.
The investment marks the company's second major step in its overseas expansion strategy.
Wanda set the current record for the biggest Chinese takeover of a US company when it bought the AMC Entertainment Holdings Inc cinema chain for $2.6 billion last year.
"We choose the most developed economies in the world, such as the United States and the United Kingdom, as our top destinations for overseas expansion," said Wang Jianlin, chairman of Wanda Group, which reported revenue of 141.7 billion yuan ($23.1 billion) last year.
"We'll not rule out investing in other developing countries, but we prefer to do our global expansion moves in well-developed markets with well-established laws and regulations," Wang said, adding the company's overseas operations are expected to contribute to the company's total revenue by 2020.
Wang added that he's very confident about the potential of China's luxury yacht market.
For instance, his company, which bought a Sunseeker Predator 108 Special Edition in 2010, will need to buy at least 30 luxury yachts for the future operations of three yacht clubs in three Chinese coastal cities as part of the company's plans to further develop its tourism and resort business.
He said the company is also considering setting up a manufacturing base for Sunseeker in China to lower the price of luxury yachts in the country. The hefty prices are a result of high import duties, which can be as high as 43 percent.
The booming luxury market in China and Chinese people's growing appetite for luxury goods are only part of reason for Wanda's expansion into the UK. The company's five-star hotel is expected to bring a Chinese touch to London and meet the needs of Chinese tourists, who are increasingly traveling overseas.
According to Wang, the 200-meter-tall hotel, located next to the Palace of Westminster and Battersea Power Station, is expected to become one of London's new landmark buildings. He said the company will build more five-star hotels overseas and plans to expand into eight to 10 major global cities in the next 10 years.
Sebastian Wood, the UK's ambassador to China, said he has seen a surge in investment from Chinese companies in the past few years.
"The UK is the most open economy. As many as 500 Chinese companies operate there," he said.
In 2011, the UK was the third-largest European Union destination for Chinese investment, after Luxembourg and France, according to the Ministry of Commerce. Chinese direct investment in the country in 2011 was $2.5 billion, it said.
A report released by Rhodium Group, an economic consultancy, in June 2012, predicted that Chinese outbound direct investment will reach $1 trillion to $2 trillion between 2010 and 2020. The report said that a quarter of that will go to Europe through mergers and acquisitions or greenfield investments.
Gary Liu, executive director of the CEIBS Lujiazui Institute of International Finance in Shanghai, said that this is a "very good time" to invest in Europe due to the current period of economic turmoil.
"Some European assets may be undervalued, but that doesn't mean they're bad, actually they have high potential growth and appreciation value," Liu said. "Also, the appreciation of the renminbi makes the cost of acquisitions much lower."
But Liu also warned of the risks of overseas acquisitions, adding that the completion of a deal does not necessarily mean success.
"The performance of the parent company can be damaged if it's unable to manage the company it buys, which likely has a totally different culture," he said.
Wang Jianlin said the company will keep Sunseeker's existing management, workforce and production base in the UK.
"We want to have a diverse culture and management style in Wanda Group because our goal is to become a global company," Wang said.
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