China Vanke

‘Cooperating’ or ‘in concert’, just how close are Baoneng and China Resources?

Analysts digest the latest moves in China’s most compelling ever takeover: the battle for Vanke

PUBLISHED : Friday, 15 July, 2016, 8:56pm
UPDATED : Friday, 15 July, 2016, 9:28pm

The ongoing battle for control of China Vanke took yet more twists and turns this week, after a Vanke director accused its largest and second largest shareholders of illegally acting together, to remove the company’s top management.

Baoneng Group — Vanke’s largest shareholder which is attempting to take it over — had earlier pledged the Vanke A-shares of its Jushenghua subsidiary, to gain funding from China Resources, its second largest shareholder, to buy more stock in Vanke.

That move suggests they were acting together, which is in breach of disclosure rules, said Hua Sheng, an independent non-exec director of the homebuilder.

Baoneng has frequently increased its stake in the housebuilder since late last year, and has now taken over from China Resources to become its biggest shareholder, with 25 per cent.

Hua continued to press home the point on Friday on his Weibo page, after previously claiming the pledge explains why China Resources welcomed Baoneng, but opposed Vanke management’s introduction of “white knight” Shenzhen Metro to fight off Baoneng.

China Resources insisted Hua’s accusation was “completely unrelated” to Vanke’s case.

And according to China Resources, the share pledge is to offset an outstanding payment from Baoneng on a real estate project, jointly developed by Baoneng and its subsidiary China Resources Land in 2015. It added the pledge was redeemed already.

Baoneng and China Resources have both insisted they are not acting in concert in replies to queries on the whole deal from Shenzhen Stock Exchange.

“I don’t think the private Baoneng and the state-owned China Resources could represent the same interests,” said Dong Dengxin, a finance professor at Wuhan University of Science and Technology.

“There is also no evidence of communications or agreements the two companies are seeking a same purpose in Vanke.”

Baoneng proposed to remove the entire Vanke board in June, including its founder Wang Shi, but China Resources has said it opposes the plan.

Lawyers say the actually legal definition of “acting in concert” is not fully defined under Chinese takeover rules.

I don’t think the private Baoneng and the state-owned China Resources could represent the same interests
Dong Dengxin, a finance professor at Wuhan University of Science and Technology

Cooperation, they say, could in theory be classified as acting in concert in some cases, but not in others.

A source at the China Securities Regulatory Commission told the Post earlier, that China Resources and Baoneng could face punishment and have their shareholder rights restricted, if they were found to have acted illegally together behind the scenes.

As Vanke’s future continues to hang in the balance, investment banks have already cut their outlook on the company, looking negatively on the potential management change, particulary, and the uncertainly that would create.

Credit Sussie, has downgraded its Hong Kong shares to “underperform” from “outperform,” and cut the target price by more than 50 per cent.

“Undoubtedly, Vanke is one of the top developers with solid performances in both sales and earnings, thanks to its professional management team,” said Credit Suisse analysts in a recent note, adding “any departure of such a professional team would be a disaster”.

J.P.Morgan also says it would look negatively on any moves that changed the company’s most-senior management or damaged its corporate culture.

“At Baoneng, we do not see any track record that can convince us the group has such vision and execution ability,” said J.P Morgan analysts.

They concluded that Baoneng simply appears to be looking for a controlling role in Vanke by increasing its stake in the company, despite its claim to be positioning itself as a strategic financial investor.