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Jushenghua borrowed heavily to purchase stake in mainland China developer Vanke, filing shows

Jushenghua says it borrowed 6.43 billion yuan to fund Vanke stake purchase

PUBLISHED : Wednesday, 16 December, 2015, 1:48pm
UPDATED : Friday, 15 July, 2016, 10:32am

Concerns over excessive leverage within China’s corporate culture were back in focus on Wednesday, after property and insurance group Jushenghua provided details on how it managed to buy 9.7 billion yuan worth of stock in Vanke to become the largest shareholder in China’s No 1 residential developer.

Jushenghua said in a regulatory filing on Wednesday that it had used financial leverage, borrowing twice the amount of its own cash investment to buy Vanke’s mainland-listed shares traded in Shenzhen.

So far the investment has paid off, as Vanke’s shares were recently at a fresh five-year high.

However, revelations of Jushenghua’s move unnerved investors, sending the Shenzhen-listed share down 2.9 per cent at 20.48 yuan on Wednesday.

Vanke announced earlier this month that Jushenghua and affiliated group Foresea Life Insurance, held a combined 20 per cent stake as of December 4, overtaking state-owned China Resources to become the developer’s largest shareholder.

About 6.43 billion yuan worth of its Vanke share purchase was funded using financial leverage from seven separate sources, the company said in the filing. Jushenghua spent a total of 9.65 billion yuan between November 27 to December 4 to acquire the stake.

In the filing, Jushenghua said it may be forced to sell some of its shareholding if Vanke’s share price were to decline by 20 per cent or more.

“It’s too aggressive and hard to understand,” said one investment banking property analyst, referring to the share acquisition.

Jushenghua’s net profit in the first 10 months this year was 1.1 billion yuan. As of October 30, current liabilities of less than one year grew to 14 billion yuan, up from 3.6 billion yuan by the end of 2014.

The analyst said Vanke’s share price appears elevated and could drop 20 per cent if the market hits another soft patch.

She added that it was unlikely China Resources would add to its Vanke stake at the current price level.

Jushenghua said in the filing that it has no plan to push for a shakeup of Vanke’s board or senior management.