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China Vanke

Vanke ends rescue plan as Evergrande declares hand, tipping balance in shareholders

Vanke said it’s ending a restructuring involving Shenzhen Metro, citing the end of a six-month regulatory deadline, after Evergrande said on CCTV it’s not keen to seize control

PUBLISHED : Sunday, 18 December, 2016, 8:48pm
UPDATED : Thursday, 22 December, 2016, 3:18pm

China Vanke, the country’s largest property developer and target of a hostile takeover, dropped its plan for summoning a white knight to its rescue, after a major shareholder declared its hand in the contentious tussle for control and tipped a crucial balance among shareholders.

Vanke decided to drop a June 17 plan involving the issuance of shares to buy Shenzhen Metro’s assets, citing the end of a six-month deadline for securing the consent of every shareholder, according to a statement on Sunday to the Shenzhen Stock Exchange.

The statement followed a declaration by China Evergrande, the third-largest Vanke shareholder with 14.07 per cent stake, that it had no intention of seizing control of Vanke.

“We have no intention to, and we will not, become the controlling shareholder of China Vanke,” said Xia Haijun, Evergrande’s vice chairman and president, during an interview with state broadcaster CCTV on Saturday.

“Vanke is a good company,” Xia told CCTV on the sidelines of a property forum in Foshan. “We invested in Vanke because we are optimistic about its outlook.”

Xia’s comment was the first made by Evergrande since the property developer began aggressively accumulating Vanke’s shares on the open market in July.

State-owned China Resources had 15.29 per cent at second spot while Baoneng Group remained Vanke’s largest shareholder at 25.4 per cent. Vanke’s management, staff and its employees’ union owned a combined 8.41 per cent of the company.

Baoneng had said in June it planned to remove Vanke’s board of directors including founder and chairman Wang Shi.

In response, Wang and his senior managers sought out a white knight. They proposed on June 17 to issue Vanke’s shares to buy assets from Shenzhen Metro, effectively turning the operator of Shenzhen’s city subway into the developer’s controlling shareholder, diluting everybody else’s stakes, especially those held by Baoneng.

The plan ran into hurdles, as China Resources, the second-largest shareholder, resisted the proposal.

“The termination was expected,” said Alfred Lau, property analyst at Bocom International.

‘The plan is not easy to gain support from other major shareholders,” said Lau.

With the rescue plan up in the air, the rival factions of shareholders had been locked in a stalemate since June, until Evergrande emerged from nowhere to begin accumulating Vanke’s shares.

By the end of November, Evergrande had splurged out a total of 36.27 billion yuan (HK$40.47 billion) to turn itself into Vanke’s third-largest shareholder and potentially a king maker in the tussle for control.

With Evergrande declaring its hand over the weekend, the takeover battle is effectively over, some analysts said.

“There is no need to introduce Shenzhen Metro to Vanke anymore,” said Guotai Junan Securities’ property analyst Liu Feifan.

For Evergrande, its Vanke investment and its insertion into the boardroom fight came at a price, drawing the ire of China’s securities and insurance regulators, who made thinly veiled criticisms of “barbarians”, “ghouls” and “robbers” that funded China’s leveraged buyouts. Evergrande’s insurance unit was even banned from buying shares.

That strong rebuke by regulators could end up protecting Vanke, as Baoneng or Evergrande will be under the regulators’ scrutiny if they ever tried to mount control for the property developer, analysts said.

“Taking into account the regulator’s criticism, Vanke is unlikely to fall into either Baoneng or Evergrande’s hands,” said David Hong, head of research at consultancy China Real Estate Information Corp.

“It may finally become a government controlled property entity,” said Hong.

Vanke will re-elect its 11 board members at its annual shareholders’ meeting in March 2017. Neither Baoneng nor Evergrande has any board seat at the moment, while state-owned conglomerate China Resources has three directors on the board.

This article has been amended to correct the size of the stake held by Baoneng in Vanke

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