TAKEOVER

China Vanke

Vanke delays restructuring plan as Evergrande keeps its hand hidden

Evergrande has amassed 10.2 per cent of Vanke, but has kept its intentions hidden

PUBLISHED : Tuesday, 15 November, 2016, 6:32pm
UPDATED : Tuesday, 15 November, 2016, 10:19pm

China Vanke Co., the prize in a boardroom tussle that’s gripped the country, said it postponed a shareholders’ meeting to discuss a restructuring plan, as its third-largest shareholder kept its hands hidden as to whether it intends to be a friend or foe in the hostile takeover.

“Vanke will further delay the despatch of the circular of a restructuring plan raised this June,” China’s second-largest property developer said in a filing to the Hong Kong and Shenzhen bourses on Monday night.

The announcement follows the disclosure by China Evergrande Group on the same day that it had amassed 10.2 per cent of Vanke’s Shenzhen-traded A shares.

Evergrande began accumulating Vanke shares in August, starting with a 4.7 per cent stake that increased to 7 per cent, and then to 8.3 per cent by October.

Still, Guangzhou-based Evergrande hadn’t said what it intends to do with its stake, equivalent to the third-largest voting bloc in Vanke.

The stake puts Evergrande within striking distance to bid for the holdings of Vanke’s two largest shareholders, in an acquisition that could bolster its land bank and its balance sheet, said China Real Estate Information Corp.’s research head David Hong.

“To achieve that goal, it’s highly likely that Evergrande will try to buy shares from Vanke’s current biggest shareholder Baoneng, or second shareholder China Resources,” he said.

Baoneng owns 25.4 per cent of Vanke, while state-owned China Resources owns 15.24 per cent.

Vanke has been the subject of one of corporate China’s largest hostile takeovers for the better part of a year, since closely held Baoneng emerged from nowhere to make a takeover bid.

To deter the takeover, Vanke’s chairman Wang Shi and his senior management proposed in June a HK$53.52 billion (US$6.9 billion) rescue plan to issue shares for assets from state-owned Shenzhen Metro Group, in the process diluting Baoneng’s stake. The plan was opposed by both Baoneng and China Resources.

Meanwhile, associates of Evergrande’s chairman Hui Ka-yan, including the family owners of Hong Kong’s New World Development and Coastal Greenland’s chairman Zhang Songqiao, are also snapping up Vanke’s shares from the open market. Vanke’s shares are also traded in Hong Kong as H shares.

Vanke could delay its restructuring to December 31, according to the company’s filing. Under listing rules by the Chinese securities regulator, Vanke must get shareholders’ approval by December 17, or risk having to amend the pricing of its Shenzhen Metro deal.

“The restructuring plan is unlikely to pass, but Vanke is still one of the best property companies in China with strong cash flow and revenue, which continues to intensify the tussle,” said Samson Man, an analyst with CMB International.

While Wang and Vanke’s management were preoccupied with surviving the boardroom fight, the company was surpassed in sales.

Evergrande overtook Vanke as China’s largest developer by sales in the first 10 months, reporting 316.8 billion yuan (HK$358.92 billion) in revenue, beating out Vanke’s 310.9 billion yuan turnover, according to the China Real Estate Information Corp.

“The battle between Vanke and Baoneng is becoming the Battle Royale involving major shareholders, ambitious new comers, and local government, which further blurs the outlook of the once strongest property developer in China,” said Guotai Junan Securities’ analyst Liu Feifan.

Foreign investors are hitting the exit, as the fight for control of Vanke dragged on. JPMorgan & Chase Co. has sold down its holdings of Vanke’s H shares to 7.61 per cent on August 9, from an earlier 12.68 per cent. Blackrock said its Vanke stake shrank to 7.06 per cent, from 11.09 per cent in July, according to Bloomberg’s data.

“Overseas funds tend to avoid corporate uncertainties,” Hong said.

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