China Vanke

China’s Evergrande takes 4.68 per cent stake in Vanke

Guangzhou-based developer becomes fourth largest shareholder in embattled homebuilder

PUBLISHED : Thursday, 04 August, 2016, 9:55pm
UPDATED : Thursday, 04 August, 2016, 10:58pm

China Evergrande Group has bought a 4.68 per cent stake in rival China Vanke, becoming its fourth largest shareholder and adding another twist to the ongoing battle for control of the country’s largest homebuilder.

Vanke’s shares in Shenzhen surged to the daily limit of 10 per cent, closing at 19.67 yuan after a report published by mainland financial information site Caixin claimed Evergrande had bought up to 2 per cent of Vanke’s A-shares.

Its shares in Hong Kong also climbed 3 per cent to one-month high of HK$18.6, while Evergrande shares rose 5 per cent to HK$5.15.

Then in a statement to the Hong Kong stock exchange after trading, Evergrande confirmed it had paid 9.1 billion yuan to acquire 4.68 per cent of the total issued share capital of Vanke up to August 4, or 516.9 million shares.

Evergrande has joined the [Vanke] takeover battle
Hong Hao, chief strategist, Bocom International Holdings

“Vanke is one of the largest property developers in the PRC with strong results. The acquisition is an investment in the group,” said Hui Ka-yan, Evergrande’s chairman. He added the purchase was made using its own resources.

Vanke has been trying to fend off a potential hostile takeover by privately owned conglomerate Baoneng. The latter has built up a 25.4 per cent stake in Vanke since late last year, and is now its largest shareholder.

Vanke announced a plan in June to bring in Shenzhen Metro as a ‘white knight’, through a 45.6 billion yuan asset swap deal, which would dilute Baoneng’s stake. However, the proposal was opposed by both Baoneng and its second largest shareholder, China Resources.

Hong Hao, chief strategist at Bocom International Holdings in Hong Kong, said after the confirmation of the purchase, that he was in no doubt, “Evergrande has joined the takeover battle”.

Hong added that Evergrande’s move made sense, given Vanke is one of the best-run developers in the industry and that its valuation has fallen considerably as the takeover battle rages on.

Vanke’s dispersed ownership structure also makes it easy to be taken over, he said.

After the stake purchase, Evergrande has became Vanke’s fourth largest shareholder, behind Anbang Insurance, which holds 6.18 per cent.

Interestingly, the Guangzhou-based developer denied the Caixin report when it first appeared, and Hong added that might have been to avoid the shareprice rising too much, as it could still have been buying the stock.

“This raised concerns over not following regulations,” he said.

In the first seven months of 2016, Vanke completed house sales of 217.5 billion yuan, a 63 per cent rise from the same period last year. Evergrande recorded January-July sales of 184.8 billion yuan, a 82.6 per cent growth.

“It’s an Evergrande style purchase,” said Alan Jin, a property analyst at Mizuho Securities, adding that Evergrande is cash-rich after posting such strong sales.

The company has been on a shopping spree in recent years.

As well as paying HK$60 billion to buy 15 mainland property projects from Hong Kong developers last year, it spent 10 billion yuan on a stake in Shengjing Bank in April, becoming its largest shareholder.

This month, it also took over Zhejiang-based developer Calxon Group, after purchasing 52.78 per cent of its shares for 3.6 billion yuan.

Its ongoing expansion, however, is largely being debt-funded with the company’s gearing ratio now one of the highest in the industry.

As of the end of 2015, Evergrande’s total debt aggregated to 296.9bn yuan plus 75.7 billion perpetual debt. Net gearing soared to 314 per cent.