China Vanke

Baoneng aligns with China Resources in opposing Vanke’s Shenzhen Metro deal

The two major shareholders own 39.57 per cent of the business, enough to block the proposal

PUBLISHED : Friday, 24 June, 2016, 5:41pm
UPDATED : Friday, 15 July, 2016, 10:32am

In a major twist to events in the long-running takeover saga, China Vanke’s largest shareholder has aligned with its second-largest shareholder to oppose a restructuring plan proposed by Vanke’s management.

Baoneng Group, which currently owns 24.26 per cent of Vanke’s share, on Thursday underlined its opposition to chairman Wang Shi and his management’s proposal to introduce Shenzhen Metro as the largest shareholder in the 45.6 billion yuan share-for-asset deal.

The move echoed with a statement issued on Thursday night by China Resources Holding, the second largest shareholder, that reiterated its opposition to the deal.

The alliance reduces the possibility that the proposal could be passed without major overhaul, as combined, China Resources and Baoneng hold 39.57 per cent of the business, enough to block the proposal. .

Vanke proposed the 45.6 billion yuan acquisition of a unit of Shenzhen Metro Group in a deal to be paid through the sale of Vanke shares.

In both their statements, Baoneng and China Resources reinforced their doubts about whether the Vanke management was fairly representing shareholders’ interests, and claimed it’s running has now been overshadowed by “insider control”, a phenomenon whereby controlling rights in companies are actually seized by management whose own interests are strongly represented.

China Resources is not opposing Vanke to cooperate with Shenzhen Metro on a project level, but against the share-for-asset purchase plan, which could dilute earnings per share.

It has argued that Vanke could buy Shenzhen Metro’s asset with cash, and its shareholder status could be restored.

Compounding the drama, meanwhile, on Friday Hua Sheng, an independent director who had approved the Shenzhen Metro deal in the shareholder vote held on June 17, complained in an article published in Shanghai Securities Journal on Friday, that small investors had been sidelined, and been offered little information on the proceedings.

He criticised both Vanke’s management and China Resources, saying the former had not communicated enough with other shareholders, and the latter was wrong in opposing the deal without an alternative plan, for example increasing its share of the business.

Hua said that when he had raised the question about China Resources’ inertia, directors told him it had reached an agreement with Baoneng to restore China Resources’ status as the largest shareholder.

In an official statement on Friday, China Resources questioned whether Hua’s individual public statement was legally compliant. It also insisted it had been in constant touch with the Shenzhen government regards its plans for the business.

In a response to the latest development on Friday morning, Vanke said it will heed all sides’ opinion and improve communications.

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