China Vanke seeks ally in Shenzhen Metro after Baoneng’s hostile takeover bid
Mainland China’s largest home builder posts 15.1 per cent rise in net profit to 18.12 billion yuan
China Vanke, the mainland’s largest home builder, has signed a preliminary agreement with subway operator Shenzhen Metro for the latter to become one of its major shareholders by injecting up to 60 billion yuan of property projects atop its subway lines, in the latest twist in a battle for control of Vanke between the company’s top management and conglomerate Baoneng.
Vanke signed a non-legally binding cooperation framework agreement on Saturday with state-backed subway operator Shenzhen Metro, Vanke said in a filing to Shenzhen’s stock exchange on Sunday.
“On our planned major asset restructuring, in addition to negotiating with Shenzhen Metro, China Vanke is also in talks with other potential parties,” Vanke said.
China Vanke chairman Wang Shi said in a statement on Saturday after the signing of the agreement that the two firms would build a “strategic” relationship to cooperate on a “railway plus property” model, starting from Shenzhen and gradually expanding to other Pear River Delta cities.
Sunday’s announcement came as Vanke posted a 15.1 per cent rise in net profit to 18.12 billion yuan (HK$21.64 billion) last year, slightly ahead of the 17.98 billion yuan average estimate of 23 analysts polled by Thomson Reuters. Revenue surged 33.6 per cent to 195.55 billion yuan.
The preliminary talks centre on Shenzhen Metro selling “some or all of the stake” it owns in a subsidiary to Vanke.
Ahead of the sale, the subway operator would inject some of its “quality” property projects above certain subway stations into the subsidiary to be sold.
“The preliminary transaction price is expected at 40 billion to 60 billion yuan,” Vanke said, adding the final price would be subject to further negotiations based on the result of an independent third-party valuation.
Vanke plans to issue new shares to Shenzhen Metro to pay for the property assets.
Vanke had a market capitalisation of 257.2 billion yuan at Friday’s market close.
If the new shares were to be issued at Friday’s market valuation, Shenzhen Metro could potentially end up with a stake of 13.5 per cent to 18.9 per cent stake in Vanke, according to calculations by the South China Morning Post.
That could help bolster the clout of Vanke chairman Wang Shi, who has won support from Anbang Insurance – which owns around 7 per cent of Vanke – to fend off a hostile takeover by Shenzhen-based property and insurance conglomerate Baoneng, controlled by Yao Zhenhua.
Baoneng became Vanke’s largest shareholder in early December with a 24.26 per cent stake, which could be diluted to 19.7 per cent by the possible share issuance to Shenzhen Metro.
Wang said Baoneng lacked credibility and branded its bid “a gambler’s act”, while mainland media said Baoneng borrowed heavily to fund its takeover bid.
The potential share issue and asset injection will be subject to approval by Vanke and Shenzhen Metro’s boards and shareholders, as well as state-owned assets and securities regulators.
Vanke said that due to uncertainties of its asset restructuring, its Shenzhen-listed shares would remain suspended until further notice.
Trading of Vanke’s shares in Shenzhen has been suspended since December 18, when they were last traded at 24.43 yuan, pending the restructuring.
Its Hong Kong shares resumed trading on January 6 and closed on Friday at HK$18.32, 20 per cent lower than on December 18.
Analysts have said the suspension was aimed at ramping up funding pressure on Baoneng, which was believed to have used high-cost margin financing to fund its stake in Vanke.