China Vanke

The battle for Vanke: Wang Shi’s own fight

The twists and turns of a six-month saga which has pitted the chairman of China’s largest property developer against its major shareholders

PUBLISHED : Friday, 17 June, 2016, 7:59pm
UPDATED : Friday, 15 July, 2016, 10:32am

Wang Shi has many public faces: University of Cambridge visiting scholar, passionate mountaineer, spokesman for a jeep brand and new president of the Asian Rowing Federation.

But it’s as chairman of China’s largest property developer, Vanke, that he is facing the struggle of his life in a battle for control of the company.

The over six-month long saga that has seen the company’s shares suspended and personal battles break out between Wang and major shareholders has worried investors, but more importantly it has highlighted corporate governance problems long rooted in Chinese companies.

“The professional manager system is not mature in China and many companies are still ruled by the voice of one man alone,” said Dong Dengxin, a finance researcher at the Wuhan University of Science and Technology.

“A modern enterprise should separate powers between boards, shareholders and managements and decisions have to be made through a decision-making mechanism,” he said.

The saga began last December when Shenzhen-based property and insurance conglomerate Baoneng upped its stake in Vanke to 24.26 per cent, becoming its largest shareholder and overtaking the holding of state-backed conglomerate China Resources, which had maintained a friendly relationship with Vanke for 15 years.

Vanke’s shares were suspended on December 18 when Wang, denouncing Baoneng and its head, the tycoon Yao Zhenhua, as “barbarians”, said Vanke did not welcome Baoneng as a shareholder.

He began his fightback soon after, and in March this year he introduced state-backed subway operator Shenzhen Metro as a “white knight” investor in an attempt to dilute Baoneng’s holding.

This backfired, however, when China Resources complained it wasn’t consulted and deemed the deal non-compliant.

Since Vanke plans to acquire up to 60 billion yuan worth of property projects from Shenzhen Metro, mostly atop subway stations in the city, through issuing new shares and making the subway operator its biggest investor, China Resources’ holding could be diluted as well as Baoneng’s.

That prospect, according to one China Resources insider, made its chairman “inflamed with rage”.

Wuhan University’s Dong said the strain on that relationship had caused problems for Wang.

“In the past, it is better to say China Resources trusted in Wang Shi rather than in Vanke, and that supported Vanke’s stable development.

“But now such a balance has been broken both internally and externally,” he said.

Mainland media reports have also said that the relationship between the managements of Vanke and China Resources is not as close since China Resources appointed a new chairman Fu Yuning.

Wang had been good friends with the conglomerate’s previous leaders.

Wang had opted for a different approach to leadership in Vanke’s early years. In 1988, when the then four-year-old Vanke was reformed into a joint-stock operation, Wang, the founder and chairman, gave up his shares and donated them to a charity fund, but remained chairman.

He set out his views in a public speech in 2014, when he said he chose to be a professional manager as he had the confidence to win the trust from the board and manage the company though his ability, not via a controlling interest.

“In China, you have to pick one from fame and fortune … and I picked fame,” he said.

But some analysts said that Wang’s approach might be the root cause of the problems the company faces.

“As a professional manager, why does Wang Shi always feel he can make the final decisions for the company? If he wants to decide who can be the shareholders, why let Vanke go public? ” said a property analyst who asked not to be identified.

“He introduced his ally [Shenzhen Metro] at the expense of the interests of both major and minority shareholders. Major shareholders may still have room for negotiation, but what can minority shareholders do?” said another analyst, who also requested anonymity.

Vanke has relied on a dispersed ownership structure for many years.

Wang, as of the end of 2015, held only 0.069 per cent of the shares of the company, while the whole senior management team collectively had only about 0.2 per cent.

The system confirms no one shareholder can dominate the company, but on the downside, it makes the share structure fragile and means the company can easily be taken over.

The management had become aware of this issue and in 2014 introduced an employee partnership scheme that pools bonuses of employees to buy Vanke shares as a way to fend off any takeover. However, the scheme only accounts for 4.14 per cent of the company, not enough to block any hostile bid.

It is possible, however, that Wang’s problem with Baoneng may solve itself.

Analysts said privately owned Baoneng is no match for either China Resources or Shenzhen Metro, which are both state-owned, in scale and reach.

It is highly possible therefore that Baoneng would exit Vanke if it could get a fair price for its holding, though that would still leave Wang’s position unclear.

“Baoneng’s exit is almost certain, but who would control Vanke is hard to predict,” said Ding Zuyu, chief executive of consultancy E-House China.

For the time being, the market’s focus is on a restructuring plan that Vanke said it would submit by around the middle of this month, and on when trading in its Shenzhen shares can resume.

After the plan is announced, it could take 10 working days for the Shenzhen stock exchange to grant approval, so that would mean the shares would not resume trading until July 4, according to Morgan Stanley.

But even with exchange approval, it is not a given that Vanke will get the nod from the two thirds of shareholders it would need at an extraordinary general meeting.

Wang’s fight is set to go on.