China Resources to sell its 15pc stake in Vanke to Shenzhen Metro

PUBLISHED : Thursday, 12 January, 2017, 3:28pm
UPDATED : Thursday, 12 January, 2017, 11:39pm

China Resources Holdings has agreed to sell its entire shareholding in homebuilder China Vanke to state-backed Shenzhen Metro Group, in a sign that the drawn-out battle between Vanke’s senior management and the company’s substantial shareholders, could be drawing to a close.

The Shenzhen-based subway operator will buy the entire 15.31 per cent shareholding in Vanke from China Resources, Vanke said in a statement to the Hong Kong Stock Exchange after the close of trade on Thursday. Earlier Shenzhen Metro confirmed the deal to the South China Morning Post.

Under the agreement Shenzhen Metro will pay 37.2 billion yuan, or 22 yuan per share to buy 1.69 billion of the company’s A-shares listed in Shenzhen. The price amounts to a 7 per cent premium from Vanke’s last closing price of 20.4 yuan.

In selling its shares, China Resources, the state-owned conglomerate and a long-term investor in Vanke, has effectively withdrawn from the battle for control over the Shenzhen-based developer, leaving Shenzhen Metro as the apparent winner.

“Apparently the Shenzhen government has stepped into the deal,” said David Hong, head of research at consultancy China Real Estate Information.

It is likely Shenzhen Metro will continue its stock purchase from other major shareholders and become the largest shareholder of Vanke, Hong said.

Still, it remains unclear what other major shareholders will do. Baoneng Group – the insurance conglomerate controlled by China’s fourth richest man, Yao Zhenhua – holds the largest stake in Vanke with 25.4 per cent, followed by China Evergrande Group with 14.07 per cent.

In March, Vanke management introduced Shenzhen Metro as a “white knight” through an asset swap deal worth up to US$6.9 billion making the latter its biggest investor, in a bid to fend off a potential hostile takeover by Baoneng. But the deal failed to gain agreement among the major parties involved.

Meanwhile, rival developer Evergrande, controlled by property tycoon Hui Ka-yan, emerged from nowhere to become Vanke’s third largest shareholder after snapping up a nearly 15 per cent stake.

While the market expects Evergrande to continue increasing its stake,the fight for control of the firm by its leading shareholders immediately cooled off after intervention by the Chinese securities and insurance regulators.

The China Securities Regulatory Commission’s chairman Liu Shiyu went off-script during a speech in Beijing last month, and took time to denounce companies that had used unauthorised funds to finance their leveraged buyouts as “barbarians,” “robbers’ and “ghouls.”

Soon after the criticism, Evergrande chief executive Xia Haijun pledged the company had “no intention to, and will not” become the controlling shareholder of Vanke.

Evergrande and Baoneng ended their fight over control of the Shenzhen-based developer shortly after the insurance regulator suspended universal life products sold by Baoneng’s unit Foresea Life, and banned Evergrande Life from investing in the stock market.

Trading in China Vanke’s Hong Kong and Shenzhen-listed shares were halted Thursday morning, Vanke said they will resume trading on next day morning.

“We continue to stay positive in Vanke,” JP Morgan analysts led by Ryan Li wrote in a note Thursday, as the deal will be “supportive to Vanke’s management continuity.”