China Vanke, which has been embroiled in a high-profile corporate power struggle for more than a year, filed a lawsuit to invalidate the shares held by its largest shareholder Baoneng Group. Vanke alleges that insurance conglomerate Baoneng violated securities laws while it accumulated a 25.4 per cent holding in Vanke because it borrowed funds through shadow banks without proper disclosure. In a lawsuit filed with the Shenzhen Luohu District People’s Court , the country’s second largest property developer asked the court to deem Baoneng’s share purchases “invalid” and to limit Baoneng’s shareholder rights, including voting rights, until the latter “corrects” its actions. Vanke, controlled by celebrity chairman Wang Shi, first raised the shadow loan accusations late last year, but the real estate firm hasn’t made any official announcement on the legal case, which was only publicly revealed by mainland Chinese media this week. A Vanke spokesperson said the case is pending and the court has not yet scheduled a hearing. Baoneng’s spokesman could not be reached for comment. However, some of China’s legal professionals believe Vanke won’t win the suit . Deng Feng, Peking University’s professor of economics law, told the South China Morning Post that it would be “impossible” to cancel Baoneng’s shareholding. “If there are any regulatory breaches, there are only two ways to punish Baoneng. One is administrative penalties imposed by regulators, the other is [action by] individual stakeholders who suffered a loss because of Baoneng’s investment in Vanke – they can sue in an individual lawsuit,” he said. “Procedural problems should not lead to actual changes in property rights.” For the past year Vanke has been fending off an apparent hostile takeover bid from little-known Baoneng Group, and has also faced opposition from its second largest shareholder China Resources Holdings over Vanke management’s plan to introduce Shenzhen Metro as “white knight” to help Vanke fight off Baoneng. Later, rival developer China Evergrande Group intensified the battle by acquiring 14.1 per cent of Vanke shares. Last year, an open letter from Vanke management to securities regulators said that Baoneng borrowed from nine highly-leveraged asset management programmes to fund its 46 billion yuan stake in Vanke accumulated since late 2015. In December, China Securities Regulatory Commission (CSRC) chairman Liu Shiyu made the unusual move of calling out companies that had used unauthorised funds to finance their leveraged buyouts as “barbarians,” “robbers’ and “ghouls”. After this move by the regulator, Vanke’s management believed they had gained the upper hand in the legal proceedings. In January China Resources agreed to sell its entire 15.3 per cent stake in Vanke to Shenzhen Metro, which is backed by the Shenzhen government. Both Baoneng and Evergrande declared their hand by saying they had no intention of taking control of Vanke. Still, it remains an open question how Baoneng and Evergrande will deal with their Vanke shareholdings. The next key event will be in March when Vanke is due to re-elect all 11 of its board directors after their three-year term expires. Morgan Stanley downgraded Vanke’s mainland A-shares to “underweight” on Tuesday, citing an overvalued stock pushed too high by the shareholder competition. Vanke’s A-shares closed 0.3 per cent lower to 20.64 yuan on Tuesday. The stock has slumped 34 per cent since its peak in December 2016.