A $1.2 billion share sale by Fosun International Ltd. this month was likely only the start of a love affair with equity deals, bankers say, as the Chinese conglomerate seeks to cut reliance on debt to fund its huge acquisition ambitions.

Led by tycoon Guo Guangchang who models himself on Warren Buffet, Fosun has launched about $31 billion in M&A since its founding in 1992, according to Thomson Reuters data. It has many more deals in its sights as it shifts its focus to insurance and investment and away from manufacturing, but its gearing has grown to uncomfortable levels.

Fosun is expected to trim some of the many corporate stakes it holds and may sell more of its own equity, emboldened as the Chinese stock market and its own shares have more than doubled over the past year, bankers said.

That represents a turnaround from its largely debt-funded M&A strategy—the $1.2 billion Hong Kong share sale this month was its biggest to date and only its second since listing in 2007. It could also provide a fee windfall for investment banks.

“Generally speaking, we will keep our debt structure under control [and] diversify our sources of capital,” Guo told reporters after Fosun’s shareholders meeting in Hong Kong on Thursday.

Fosun had total debt of 104 billion yuan ($16.7 billion) at the end of last year, up 70 percent from 2012 and not too far off its $19.2 billion market value.

“They have been pretty disciplined in tapping equity markets since listing, but as their acquisition pipeline grows, they are likely to be more judicious about how they finance deals,” a senior Hong Kong-based equity capital market banker said.

Moody’s Investors Service warned this month that failure by Fosun to raise sufficient equity or speed up asset sales may put its speculative grade credit rating in danger of a downgrade.

The credit agency estimates Fosun has unpaid M&A costs of around $4.8 billion, while sources have said Fosun is looking at least $7 billion in fresh acquisitions. These include Portuguese lender Novo Banco valued at about 4 billion euros ($4.5 billion) and Morgan Stanley’s Australian real estate unit worth about $2.3 billion.

Assuming a 50 percent debt-to-equity funding mix, Fosun may need to raise $6 billion through sales of its own shares or by selling other holdings if it wants to keep its gearing in check and fund the $7 billion in deals under consideration, according to Reuters calculations.

Its net debt-to-equity ratio of 1.29 is the second-highest among global insurance and investment companies, according to Thomson Reuters data.

“It’s a problem and I was worried,” Max Li, a professional investor who owns one million Fosun shares and participated in the recent share offering, said at the sidelines of the shareholder meeting. “But Fosun’s investment strategy is good and I believe in Guo and his team’s decisions.”

Despite numerous acquisitions in the past decade, its reliance on debt funding has meant the Shanghai-based firm has paid just $140 million in fees to investment banks, according to Thomson Reuters data.

More than half of that came from equity deals, which are the most lucrative source of fees for investment banks in Asia, suggesting that any pick up in share sales will be a boon for banks.

Morgan Stanley currently tops the investment bank league table earning $25.9 million, followed by UBS and China’s CICC, according Thomson Reuters Freeman Consulting estimates.

Fosun has listed six stakes in other firms as for sale and has many more it could also unload or trim. Those listed include a holding in New China Life Insurance Co Ltd currently worth some $270 million and shares in Zhongshan Public Utilities worth $555 million.

($1 = 6.2009 Chinese yuan) ($1 = 0.8974 euros)

(Reporting by Denny Thomas; Additional reporting by Deena Yao in Hong Kong and Shilpa Murthy in Bangalore; Editing by Edwina Gibbs)

Topics Mergers & Acquisitions China